China: We Must Look at the Bigger Picture Beyond Sourcing

I realize that we spend quite a bit of time here and on MetalMiner looking at sourcing issues related to China. From the total cost impact of a slowly appreciating RMB to VAT rebate changes and import/export tariffs to rising labor costs, there's never a dull (or simple) moment on the China sourcing front. Moreover, once you toss in the all-too-frequent Chinese supplier penchant for finding ways to cut corners and use substitute materials (unless of course, they know they're being closely monitored), it becomes hard to spend any time with our head above water considering the much bigger picture items that we should also consider with our efforts in the region.

A week or two ago, The Economist published a series of feature articles in their print publication (also available on the website, which requires some digging) on the future of China, including US / China relations. This entire special edition on China should be required reading for anyone currently sourcing or doing work in the region and/or debating pursuing the Chinese market. I came away from reading the pieces with a number of impressions, none of which make me feel any more comfortable with increasing our trade with Chinese companies (and state-run companies) until the basis of our overall relationship changes.

Here's what sticks in my mind for highlights:

  • The US and China have been putting off a collision course when it comes to key economic and political issues that will have to come to a head sooner rather than later
  • The US and China will face a series of military issues as China continues to ramp up its investment in defense capabilities (including the first ballistic anti-ship missile)
  • Since the Bush and Clinton administrations, US policy has largely focused on not rocking the boat and attempting to maintain the status quo, which has sent a message to China that they are free to push the limits of acceptable political, economic and military behavior
  • China has shunned and embarrassed President Obama and other US ranking officials by sending underlings to meet and converse with them over various topics (not to mention taking a week to respond to the change in the North Korean landscape, when discussions should have happened in days or hours between the two superpowers)

It's clear to me from reading The Economist's feature stories that there's only one direction for US/China to head in. And you better bet that as political, economic and military relations get tenser, so will business and trading relations as well.

Jason Busch

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