| Robert Brooks |
About five years ago a well-informed foundryman explained to me that domestic producers of high-value cast products had not much to fear from the availability of cheaper, foreign-made goods. Industrial demand was solid then, and castings manufactured in China showed none of the metallurgical, physical, or tensile quality that the U.S. metalcasters produce so well, and that OEMs expect. In fact, he opined global industrialization would be a boon for the best domestic metalcasters because it would bring to them more selective buyers from the international market.
I was a bit skeptical of that analysis a few years ago, and I’m sure that I wasn’t alone: even during that comparatively prosperous time the anxiety about cheaper foreign goods was widespread among metalcasters and other manufacturers. In fact, the frustration over low-cost products was only one point amid the general anxiety of global economics. There were also worries that overexpansion of Chinese industries was driving down manufacturing costs around the world, and driving up raw material costs.
Five years later, and three years since the start of what we now call “The Great Recession,” those worries have been realized for reasons that seem almost opposite to the analysis offered to me: the Chinese market worked through the global crisis with comparatively little problem. Chinese manufacturers’ apparent triumph did not result from their foresight or skill but from the collapse of demand in the rest of the world. And that settles much of the previous complaint, because now there’s no argument left about price distortions: the lowest price is the market standard.
The point of this rehash is that arguments about trade disparities typically identify the foreign producers as villains with a plot for world domination. They are not innocents, but nor are they violators merely because they find a way to produce a less expensive product. Commerce, whether local or global, is a series of transactions. Markets are defined by equilibrium, not resolution. Success is defined by momentum — being able to maintain a pattern of performance despite obstacles or competition.
There is evidence of this now in the indications that China’s own economic expansion may have peaked. Reports show that Chinese electricity and oil consumption has declined over recent months, and the Chinese purchasing- managers’ index reveals three months of slowing industrial activity. With data indicating that export volumes have fallen for four consecutive months, now would be a good time for the long-promised emergence of a consumerdriven economy in China, because the central government is hinting that any further spending would promote already excessive inflation and aggravate the problem of that country’s undercapitalized banks.
Over the years, dissections of China’s economic expansion have only vaguely addressed the weakness now manifesting there, which is the failure to originate technologies or products that can proliferate, and propagate new economic activity. China’s progress has been based on authority, not ingenuity. The government mandated development and underwrote activity, but it cannot command innovation now that it needs it.
For a long time, Western manufacturers provided the innovation by surrendering their product designs and technical processes to gain access to the Chinese market. It was a coercive trade practice that drew less outrage than other tactics, possibly because it involved willing participants, or possibly because the cost seemed to be a delayed one. Those compromises, however, slow the momentum on those particular products and technologies. They are less valuable if everyone has them.
Thinking back now on my contact’s assessment, I realize he was offering a more fundamental understanding of the global economic situation than I credited to him at the time. Competing for market share is a price war that producers wage with the market. But, to establish market presence and hold it in the face of competition a producer must create and maintain something of value.