Thoughts about China

I believe that if you’re not worried about China, you don’t know enough about it. I know enough to worry, and this is while leaving the pandemic aside.

Our dependency on China is huge. As you read this you are probably touching, seeing and hearing dozens of items that are manufactured in China or have parts in them that are. Hypothetically speaking, if we stopped getting parts and products from China, there will be shortage in most everything. Of course that would also hurt China as they relay on the income from the US, though an authoritarian dictatorship has more “flexibility” in handling shortages, but that’s a different discussion.

But China, and you see this with everything they do, do not declare to us what they are and will do, so to squeeze us all they have to do is gradually raise prices, the Chinese government can do that by raising taxes locally, and by that causing manufacturers to raise prices, – and it seems they already do just that. You can claim that the market will adjust, if prices are too high new solutions will be found. Yes and no. Manufacturing infrastructure and know-how takes time and investment, and prices will have to get over a certain threshold in order for this to even trigger the motivation to do that. But that’s only part of the problem.

The foundation for manufacturing anything is energy. Not only the US is not increasing energy supply capabilities, under the Biden administration energy capabilities seems to be shrinking and energy price is increasing by the second. Green energy as currently viewed is a pipe dream, it can be done in parallel but can’t replace other sources fast enough, and probably will never catch up with demand. China on the other hand, is building power plants, traditional and nuclear. The US is not really investing in nuclear energy (very small budget). Nuclear energy is not defined as but actually is the most scalable green energy solution. Without energy, we can’t have manufacturing. I wrote about energy here and here.

So what should be done?

Well, first, energy infrastructure investment must be huge. Until we have A LOT of nuclear powerplants, we need to use gas and oil, otherwise everything will slow down. That can be achieved by the government directly investing in building nuclear powerplants, but probably even better would be to give incentives to private investors to do it – Elon Musk is the first that comes to mind, as he can benefit across the board from low electricity prices (manufacturing and selling more EVs), but many others can as well, even current oil companies, as we used to say, if anyone is going to cannibalize out business, it better be us. Let’s for a second think that energy in this country was free. We pay a flat fee as part of our taxes, and nuclear energy is scaled up to a level that we can export energy (ignore the how) and make it virtually free in the US. This has impact on everything – from prices to innovation to every item you can think of. But even we go half way, decrease energy cost by 50%, it is already a huge enabler for everything.

Second, we need to get manufacturing to the US. Since labor in the US is expensive and will never be a bowl of rice a day, we need to invest in automation. Most manufacturing can be automated with minimize labor. The reason it is not done as much as we need in the US, is that we had China as a cheap alternative, it started just because of cheap labor, lack of regulation and them cutting coroners (not just with quality of the products, but you can be sure the material used and the specifications of products are not what they claim – I know this from first hand experience manufacturing in China). But Chinese factories started gaining automation and manufacturing knowhow that we are now lacking in the US. Again, the government should give huge incentives for that, injecting money specifically to manufacturing automation and infrastructure. And don’t let anyone say automation will kill jobs – currently all these jobs are in China and we pay for them dearly.

There is an issue of raw materials. but if the US gets energy and manufacturing right, agreements can be made where needed, giving preferred tariffs on US made products to countries that supply us with raw materials we need. I’m sure there are other ways to secure raw materials, and find alternatives to anything that is in shortage.

Yes, I’m sure I’m oversimplifying things, but I think that the concepts are solid. This should be treated as a war. It is a war. China will crush the US if they could, just because they can. The US became spoiled and by that vulnerable. That’s how empires collapse. We don’t want that. We need to set energy and manufacturing as a mission, incentivize innovation and define a very clear goal of not only reducing offshore manufacturing and import, but becoming again energy independent and becoming an exported of manufactured goods and not an importer. It might even unite Americans and push the political BS aside. My two (and a half) cents.

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