When Peter Navarro, Director of the Office of Trade and Manufacturing Policy for the Trump Administration, wrote his book, The Coming China Wars: Where they will be fought and how they can be won, in 2007, he couldn’t possibly have predicted the turn of events that has taken place over the past three years. But maybe he had a premonition.
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Navarro, a business professor at University of California, Irvine, with a PhD in economics from Harvard, was the featured guest speaker at the 2008 annual convention of the American Mold Builders Association (AMBA). We met that year in Puerto Vallarta, Mexico, and Navarro spoke on the topic, “Manufacturing in North America: Opportunity for All.” It was a time when American mold manufacturers were waging a battle for work from OEMs that had started taking their mold business to China. Back then, molds could be built at a 70% discount in China compared with the United States.
Having been voted into the World Trade Organization (WTO) in December 2001, China’s goals were to engage with new trading partners and raise prospects for a better life for its one billion–plus citizens. It was at that point that the Western world began to have expectations about China that, in hindsight, were very different from China’s actual ambitions.
One of America’s expectations, I believe, was that by bringing the People’s Republic of China into the world of capitalism and democracy, the communism that Mao created over the decades since 1949 would become less attractive. Engaging with China as a trading partner would bring that country to a more democratic way of being. I know that many manufacturing business executives, owners, and managers thought that way. Communism would gradually go away as the Chinese people were exposed to U.S. ideas and manufacturing technologies.
Many U.S. manufacturers were lured to rush into China by the prospect of hundreds of millions of Chinese consumers eager to buy products from U.S. manufacturers. I wrote many articles at the time cautioning American companies that they were entering that market wearing rose-colored glasses. They had visions of the cheap Chinese labor market allowing them to make their products for a fraction of what they would pay in the United States or even in Mexico. Many companies had been opening up manufacturing plants south of the border since the 1970s to take advantage of cheap labor and the close proximity to the U.S. market.
Some of the U.S. manufacturers who had gone to Mexico soon were taking even more of their manufacturing to China. Mexico also began to suffer from the China syndrome. It was not far into this trade experiment with the People’s Republic of China that U.S. manufacturers began to see cracks developing in the arrangement.
As Navarro pointed out in his book, few health and safety and environmental regulations existed in China, which lacked “a basic regulatory and legal system.” By bringing in intellectual property, patented technology, machinery and manufacturing equipment, U.S. companies were opening themselves up to IP theft and the counterfeiting of U.S. products. “Counterfeit and pirated goods sold domestically help keep inflation low, and selling these goods internationally creates jobs and export revenues,” wrote Navarro.