Made in China: Cheap but unfair
China has grown wealthy by producing and exporting inexpensive goods to the world. The question is how does China produce these goods at such a low cost and do they do it fairly?
The partial answer: Labor costs in China — at the expense of the workers — have been significantly less than labor costs in the U.S. Chinese workers churn out products, but are often not compensated with a fair wage or proper working conditions. But cheap wages alone cannot account for the entire cost differential.
The Chinese government also heavily subsidies its industrial sector. In 2012, for example, government subsidies from Beijing were up 23 percent, in an effort to shore up the slowing Chinese economy. The subsidies come in many forms — such as cheap land, tax rebates, and sometimes straight cash. This helps companies in China keep their costs low and maintain a profit.
These subsidies allow products produced in China to be made at a level significantly lower than goods produced in the U.S. As Leo Hindery, Jr., chairman of the Smart Globalization Initiative at the New America Foundation (and author of a chapter in our new book, ReMaking America) points out:
Right now, fully 90 percent of the cost differential between an average good manufactured in China and a similar good manufactured in the U.S. is accounted for by various Chinese subsidies, most of them illegal under the World Trade Organization (WTO).
Along with illegal subsidies, China’s government also manipulates its currency which causes large trade deficits and puts American manufacturers and workers at an unfair disadvantage.
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