The Frog That Jumped Xi Jinping’s Pot
Let’s talk about a specific frog, the United States. In the 1990s the CCP heavily invested in manufacturers who were encouraged to sell abroad. At that time, China had an enormous young population ready to work for much less than their Western counterparts.
From 2000 on their hard work started to pay off — exponentially.
We traded manufacturing jobs for cheaper goods. It was a good deal until 2015. The backlash ushered in Trump.
The days of Chinese manufacturing growth are over. So are the days of Western innovation (which receives little attention)! We no longer have companies like Apple creating products people line up to buy. That has far-reaching consequences.
Chinese factory owners will continue to do quite well selling goods to the West. But there is dwindling opportunity for poor people in China. The corollary: the West’s poorer half’s standard of living psychologically drops as prices seem higher, even if they don’t increase.
Parallel to all this, automation has been eliminating jobs. That’s helped the Chinese deal with its shrinking labor force and it has helped the West because it sells a lot of automation technology. Developed by the kind of creativity that thrives in the West where fragmented political power doesn’t get in the way.
Xi Jinping doesn’t want China to be the low-cost manufacturer anymore. He wants it to be a producer of high-margin products — like Apple. Not going to happen. The West also doesn’t want to be beholden to Chinese manufacturing. Also not going to happen.
While the CCP deals with its worsening internal balance between individual entrepreneurism and national strategy the frog that is the American consumer jumped the pot.
Citizens of the United States no longer care about cheaper goods. They have all the crap they could ever want. When was the last time you went to buy something and were amazed by a Chinese knockoff that was significantly cheaper? As the chart above suggests, China lost its pricing advantage around 2015.
Again, this isn’t China’s fault but a result of global weaknesses in both innovation and lowering costs of living.
What the United States and China both have in common are their wealthy families who either own the factories or the intellectual capital to create desirable products. Unfortunately, both nations also share the same labor-force (unemployment) problem where many are being suffocated by increased automation and decreased consumerism (aging populations buy less and less).
You can easily see this two economic class reality in the United States. It isn’t about raw wealth, it’s about opportunity. Your school-teacher friend on Facebook with a daughter graduating from an Ivy League and taking a high-paid job in one happy camp. Your well-off neighborhood friend, who owns a few rental properties, with a daughter who can’t find a good job, at the other bitter end.
I believe this class divide is even WORSE in China. We just don’t see it. We don’t see China’s internal frogs either getting boiled or jumping the pot (“Lie Flat” movement).
The recent floods in major Chinese cities will usher in Trump like divisions in China. There are protests; we just don’t see them. Eventually the CCP won’t be able to contain the resentments of the lower middle class Chinese.
The West is lucky in that democracy has a good mechanism for sorting things out (though that doesn’t mean without huge costs in life — civil wars). The CCP will do its best to prevent similar mechanisms to take hold in China due to complex historical precedents that are easy to criticize if one doesn’t know a thing about China’s history. The same logic drives the Russian government (Putin).
There is no easy fix. China doesn’t have the excess labor to lower the cost of goods and increase revenues. The West doesn’t have the innovation to create products that create growth spanning all economic classes. Worse, what innovation the West produces favors only the wealthy — space flight, Teslas, private aircraft, work from home, etc.
Can everyone become wealthy? If not, what then? How long can the CCP keep their lower middle class, who have been wiped out by floods and overbuilding, from revolting? How long can the United States keep its lower middle class from starting a civil war?
