November 26, 2013: Holding out hope for Chinese economic reform

Posted by mmcmullan on 11/26/2013

Good morning,

Happy Tuesday, everybody! In the immediate aftermath of China’s big-deal Third Plenary policy discussions, markets and the economists who study them were disappointed. Where are all the reforms to China’s state-controlled economy? they asked.

Well, take some free, albeit unsolicited, advice and just chill out, because internal politicking in a massive, one-party state takes time. Two weeks later, analysts have had time to chew over the Plenary, and -- surprise! -- they see some hope that the reforms hinted at in the communiques from the Third Plenary will actually take place. For example: Writing in the New York Times, Stephen S. Roach of Yale University considers the ramifications of reform for the American economy:

The rest of the world should welcome (China’s) rebalancing from a producer model to a consumer society. But it could prove especially challenging for the United States. Over the past 20 years, China and America have been locked in an increasingly uncomfortable embrace. China supported America’s growth agenda by producing cheap goods and buying Treasuries, and American consumers helped China by their insatiable demand for cheap imported goods.

Interesting idea, but we think that the American economy can handle it. Polling shows that Americans like and want a strong domestic manufacturing base. The warm welcome for Chinese companies locating manufacturing facilities in the States shows that to be the case. And there are plenty of organizations out there (like yours truly) that are calling on Washington to ramp up the nation’s industrial capacity, and, in fact, have laid out plenty of ways the White House could do it without the help of a recalcitrant Congress.

That Third Plenum turned out to be big news. If those reforms do take place, though, America had better get ready for China’s big shift to consumption.

The Machinists union in Washington state voted down a contract extension with Boeing, causing the airline manufacturer to begin searching for a new place to make its 777X liner. Elected officials from around the country are showing no shame in playing the role of PR flack with the hopes of being chosen as Boeing’s new home. They may not want to act so hastily, Boeing doesn’t always make the best tenant. Writes Reid Wilson at the Washington Post:

The union’s vote, just days after Washington legislators passed the largest corporate tax break in the nation’s history in order to keep tens of thousands of jobs in the state, came despite Boeing’s warnings that failure to pass the contract would force the company to look elsewhere. The aerospace giant has been slowly divesting itself from Washington in recent years, first moving its corporate headquarters to Chicago, then opening a major construction facility in North Charleston, S.C. Earlier this year, Boeing said it would move several hundred engineering jobs to Long Beach, Calif.

Regardless of Boeing’s next move, this situation is certain to be precedent-setting and may even have implications for other business/labor relationships around the country.

Quote of the day. Clive Thompson at Wired Magazine published a lengthy interview with Vaclav Smil, professor emeritus at the University of Manitoba. Smil has made a name for himself by writing evocatively on subjects of interest to us at the Alliance for American Manufacturing (AAM), such as manufacturing and energy. One quote from the interview in particular caught our eye:

Most innovation is not done by research institutes and national laboratories. It comes from manufacturing—from companies that want to extend their product reach, improve their costs, increase their returns. What’s very important is in-house research. Innovation usually arises from somebody taking a product already in production and making it better: better glass, better aluminum, a better chip. Innovation always starts with a product.

Hear, hear, Professor Smil. (H/T - Matt McFarland, the Washington Post)

Every year ... or heck, maybe even every month, we hear from people who express frustration at how hard it is to find American-made products. Today, we’re holding a Google Hangout with some of our favorite Made in America experts, to provide ideas and suggestions on easier Made in the USA shopping. Have a question? Send it to info [at] aamfg [dot] org, or tweet it to @KeepItMadeinUSA.

Don’t forget:

There’s more to the monthly jobs report than just numbers. There are people behind the data, and their stories deserve to be heard. Do you have one to tell? Have you – or your friends, family, or neighbors – started looking for work recently? Have you stopped? Send in your jobs report to info [at] aamfg [dot] org, tweet it to us at @keepitmadeinUSA, or contact us via Facebook. And read the ever-updating report right here.

Have a good Tuesday, America.

-AAM

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