Chapter 42 What is going on between China and the United States?

In 2004, some economists believed that the global economy was mainly driven by production in China and consumption in the United States.According to the International Monetary Fund, more than half of the world's economic growth comes from China and the United States.China's export is a phenomenon of globalization, while the United States is the largest consumer of world products.The economic crisis that began in 2008 showed that American consumers cannot forever absorb the global surplus, and Wall Street financial firms cannot endlessly grow from real estate credit.However, global economic growth in 2004 was driven by the joint pillars of China and the United States.

In fact, apart from China's production and American consumption, there are many other factors in the development of the world economy.Statistically, China's production and US consumption are indeed the main components of global economic activities, but we know that data and models are built to explain and test previous assumptions, and they cannot give answers to those unknown things. The United States was already the world's largest consumer, a position established in the mid-20th century, long before China became the number one producer of low-priced goods.Other countries buy U.S. treasury bonds, and emerging markets provide opportunities for U.S. multinational companies to develop.However, between the two major countries, China and the United States, various situations always present a two-way situation.China provides the United States with a vast domestic market and has also become a production base for goods exported to the United States.In addition to attracting a huge amount of foreign capital investment, it also has huge foreign exchange reserves relying on the fixed exchange rate system.China sells goods to the United States, and then uses its large currency reserves to loan Americans to buy these goods imported from China.China makes profits by producing cheap goods and invests in infrastructure.In this context, China's middle class has gradually formed, and their income and desires are increasing day by day.The huge demand of the Chinese middle class provides opportunities for the United States and multinational companies. In the long run, the status quo of the United States as the largest consumer country is likely to be changed.

The integration of the two great powers, China and the United States, is not caused by any single factor.Foreign direct investment, low-cost commodity production, the emerging Chinese middle class, the strong purchasing power of the United States, the exchange rates of the two currencies, and many other factors, none of these factors can be the only reason for the integration of China and the United States.One of these factors can only be said to be an important driving force for the development of Sino-US bilateral relations.Only when these factors work together can the two major countries move towards super-integration, and it is possible to turn two huge economies into one economy.

The unprecedented flow of goods and money means that the applicability of once-accepted models of earnings growth, interest rates and wages are being called into question.Despite good economic growth in the developed world, for most workers there has been no improvement in material well-being and no increase in wages.This is what people don't want to see.However, the consequences of not increasing wages are not as bad as they once were.Goods, services, and housing remain affordable because low-cost production in China keeps U.S. domestic prices low, and because China buys U.S. Treasuries that keep interest rates in its hands. In 2008, this balanced system was broken, but, as we have seen, the reason was not due to the super integration of China and the United States, nor did it depend on the degree of interdependence between China and the United States.

Some capital holders have seen huge profits from financial credit derivatives, while more people have seen development prospects from the super integration of China and the United States.Before 2004, the more than 100 companies in the S&P 500 Index generated 20% to 40% of their profits outside the United States.These more than 100 companies are all powerful and large companies in the United States.In recent years, more than 400 of the 500 companies have claimed that more than 40% of their profits are generated outside the United States.The US, EU and Japan, which account for three-quarters of global output, grew by less than 3%.The average income of large enterprises with trade relations with China has increased by 20%, 30%, or even more.This increase in earnings is partly due to improvements in corporate productivity and employee productivity, but it is mainly due to the strong growth drivers in China that have driven these companies to increase their earnings.

China's influence is not only reflected in the formation of the United States and "Central America". From Brazil to Australia, from South Korea to Japan, economic development has been driven by China's demand.As China's industrialization accelerated, inland areas and previously relatively backward provinces also accelerated their development, and China's demand for raw materials increased dramatically.Soon, China's demand will raise the global price level and cause a new round of vigilance against China's export trade around the world.Price levels for copper, iron ore, nickel, oil and steel rose modestly.Countries that export raw materials to China face the same situation as those that sell high-end equipment to China. When China's economy is developing well, these countries' economies are also more optimistic.

The global economic growth driven by China is one of the reasons why the revenue growth rate of multinational companies exceeds the economic growth rate of their own countries.In fact, it is not only China that drives the global economy, but also "Central America".Benefits from Chinese exports to the United States have created demand for high-end equipment and industrial goods in China.Every year, 150 billion U.S. dollars flow from American pockets into Chinese wallets through Wal-Mart, Nike, Home Depot, Motorola, Intel and other companies. The money is used to build the maglev train that connects Shanghai’s new airport with downtown and leads to Tibet. The Qinghai-Tibet Railway with the highest altitude in the world.The money China earns from the lower and middle classes of the United States is used to build power stations and ports in Dalian and Tianjin.There is also a lot of money flowing into the hands of tens of millions of Chinese urban dwellers, who in turn use the money they earn to buy Nike sneakers, Wal-Mart's spicy chicken feet, Tesco's soap and Procter & Gamble's Olay.The middle class in China will patronize the McDonald's fast food restaurant on the way home from get off work. The TVs they watch after returning home are Chinese brands, such as TCL, but the screens used in the TVs are produced by Corning Corporation of the United States.

Multinational corporations with trade relations with China have grown rapidly because they have access to multiple markets without the burden of influencing countries and governments.Both large and small companies are focusing on developing markets, withdrawing from stagnant markets and investing heavily in these developing markets.More and more companies are no longer responsible for the medical security of their employees, and they will use the tax system of a certain country as a measure to apply to themselves, so as to facilitate tax avoidance.In the 2004 US presidential election speech, many judgments may have been wrong, but the judgment on the future development trend is basically correct: the future beneficiaries are capital holders, not laborers.Firms and capital both benefit from liquidity and flexibility, which labor is much worse off in comparison.

This trend has been gaining momentum over the past few decades, but without the integration between China and the United States, the outcome may have been much worse for American workers and workers.Let's take Caterpillar as an example.Every Carter excavator seems to wear a "hat" with the word "CAT" printed on it. This is the company's anthropomorphic interpretation of the idea of ​​"man surpasses nature".It is this kind of corporate philosophy that makes Caterpillar a leading company in the Western excavator machinery industry.The company manufactures earthmoving equipment, trucks, backhoes, refuse handlers, road builders, excavators, cranes, diesel engines, and more that help people dig, mine, demolish or rebuild buildings.None of this is what environmentalists are after, but doing such work would make it easier for humans to ingest raw materials and build infrastructure from nature. In the late 1970s and early 1980s, Caterpillar's performance exploded during the economic downturn in the United States, which laid the foundation for its search for new overseas markets.Caterpillar has few competitors in the world, only Japan's Komatsu and Hitachi are comparable in size and level.Whether on a construction site in the United States, a mine in Australia or a farm in Brazil, you can see machinery and equipment produced by Caterpillar at work.The only downside for Caterpillar is the higher price, which is, of course, critical.

China has become Caterpillar's target market since the mid-1990s, but it is not the largest market yet, but the Chinese market has a good development prospect.The pace of urban construction in China is accelerating, and many projects need the help of mechanical equipment to carry out.At that time, the scale of China's coal industry was still very small, and ordinary excavators could meet the requirements of the operation.The first Chinese customer of Caterpillar is the Chinese government, and credit guarantee is required during the purchase process. In 1994, Caterpillar opened its first factory in China, but 10 years later, the total number of equipment produced by the company was only 5,000 units.However, the company then experienced a period of rapid growth, and in 2004 alone, Caterpillar produced another 5,000 machines. In 2005, the company's production volume increased further, and its annual sales reached 1 billion US dollars.Caterpillar has also begun to transfer technology and design to Chinese local companies, so as to accelerate the improvement of the company's performance.Like many companies, Caterpillar sacrificed the long-term value of its intellectual property in exchange for short-term rapid growth in market share.

Although Caterpillar's business in China has soared, it has not been able to fully enjoy the fruits of victory. Being an overly cautious company, Caterpillar has been slow to improve and repair its production lines.The equipment in its production plant is relatively outdated and cannot keep up with the ever-changing demands of the market.This not only increases Caterpillar's operating costs, but also makes it encounter many challenges in responding to flexible and changing market demands.The company is also more cautious in predicting future demand. It is used to finding laws from the historical relationship between the country and the world's economic development, and determines the output according to the results of analysis and judgment.Therefore, Caterpillar's production activities are closely related to the growth of national GDP and the average GDP of all countries, and its statistics are mainly obtained from the reports of the International Monetary Fund and the World Bank, as well as the company's own economic forecasts. . However, as we know, the average level of China's economic growth is higher than the average level of world economic growth.Therefore, for Caterpillar, the actual market demand is much larger than its predicted value, and those countries that provide raw materials to China need a large number of excavators. After 2004, China became the world's largest consumer of industrial raw materials, including iron ore, nickel, zinc, cement, copper and aluminum.Although its economic aggregate is less than 15% of that of the United States and the European Union combined, China almost alone drives the growth of world consumption of raw materials.This growth momentum is unprecedented, and many companies that provide raw materials to China did not expect such a large demand in China.Caterpillar also did not expect the huge demand of the Chinese market, and its always conservative corporate culture and production concept prevented it from keeping up with the rapid development of the market.Insufficient product supply also limits Caterpillar's market reach. Although Caterpillar has not been able to maximize its own profits on the road to making money, it still achieved higher revenue and profits, especially when the development of the US and European markets stagnated in 2006 and 2007 , Caterpillar's financial performance is even more dazzling.Demand from China will not only help Caterpillar maintain billions of dollars in revenue but also keep its Oxford, Mississippi, manufacturing plant relatively low amid domestic attacks on China for stealing American jobs. High employment rate. The factory in Oxford manufactures high-pressure pump couplings, which is the only manufacturer in the world that produces high-pressure pump couplings.Caterpillar has adopted a centralized production method for such miniaturized key components, and then shipped them to various parts of the world, such as Brazil and Wuxi, China.Although the demand in developed countries has plummeted, the demand in China has remained strong, so the production plant in Oxford can continue to operate normally.The economic situation in the area is becoming more and more worrisome, and only the factory has not been affected by the economic downturn in Mississippi.Even so, Caterpillar was affected by the overall economic environment in the United States, and its development momentum weakened. The tornado in February 2008 dealt a heavy blow to Caterpillar and the factory. The damage to the factory equipment was extremely serious, and the factory once stopped production.The American economy didn't bring down Caterpillar's production plants, but natural disasters decimated its prosperity. Due to the existence of the global market and the pull of China's economic development, there are hundreds of places in the United States like Oxford, Mississippi, and countless manufacturers are still operating normally during the economic depression.Under the ever-changing business model, many companies have closed down, and many companies have followed the trend.The former might make newspaper headlines or spark a political movement; the latter go about its business in obscurity, like Caterpillar's Oxford plant. Much of the political rhetoric in 2004 involved how China would affect the world economy and emphasized the competitive relationship between China and the United States.When the Chinese government responds to the U.S. condemnation, it sends a signal that China’s expanding influence and growing demand for global commodities will inevitably increase conflicts and frictions with the U.S. The Chinese government will try to take measures to reduce China’s dependence on the U.S. market degree.The Chinese economy operates under a special system, and domestic debates on some issues also reflect the intensity of competition between China and the United States.The Chinese government is always saying "our people are poor, but Americans are rich".If the U.S. complains about China's exchange rate system and the robbing of American jobs, it can only be because U.S. politicians don't want to solve these thorny economic and social problems at home, and China cannot be blamed.In fact, the same is true. The perception of the rivalry between the US and China is heightened when the two countries' economic ties become inseparable.Economists have published reports predicting the future of China and the United States.Everyone likes to talk about "the world becoming a global village" and "the globalization of commerce and capital flows", but few people predict the huge impact of how to operate under the new economic system. output.The staggering statistics presented to people were perceived as an anomaly, or a blip, or an imbalance.No matter how much China consumes, it will always be regarded by the United States as a producer of low-cost goods; no matter how much profit China generates for the United States, Americans will always regard China as a potential threat.It should come as no surprise that relations between China and the United States will enter a period of tension following the US presidential election. In some ways, the growing integration of China and the United States is the cause of tension between the two countries.Few people fully understand what is going on between China and the United States. The two governments and the two different cultures will take it for granted that the other is a threat to them.Statistics don't tell the full story of what happened, but they do give a sense that something has definitely happened, and it's different from what happened before. Since 2004, people have generally not had a good opinion of the integration between China and the United States. On the contrary, the voice of opposition has been growing louder and louder.The prospect of Sino-US integration is still uncertain, but people know very well that they don't like such things to happen.When a Chinese state-owned enterprise competes with the United States for market share, those domestic concerns about Sino-U.S. integration will explode, and the xenophobic sentiment generated by opposition voices will drown out the voices supporting Sino-U.S. integration.