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China And The US: History Repeats Itself

Business, China, Company Strategy, Economics, Environment, Europe, US

By John Richardson

China_US_flagsTHE history of the economic rise of the United States during the 19th and 20th centuries is littered with instances of financial crises, oversupply in manufacturing and infrastructure and government stimulus programmes – most notably, the New Deal.

Roll forward to China in the last two decades of the 20th century and the first 14 years of this century.

“What really annoys me is that some Americans  don’t look at history at all, even their own history, never mind anyone else’s history,” said a Singapore-based Chinese national, who works in the financial sector.

“There is a mirror here. What happened in the US is now happening in China.”

We discussed and agreed the following headline similarities.

  • Generating enough jobs, especially manufacturing jobs, to help hundreds of millions of people escape from poverty.
  • Keeping those jobs in times of economic distress even if it means resorting to trade protectionism.
  • Moving up the manufacturing value chain through innovation as labour costs rise.
  • The US copied, and sometimes stole, other people’s technologies in order to move up this value chain. China is often accused of following the same route.
  • Building lots of infrastructure – e.g. the post-Second World War US Highways Act and now China’s development of its Western provinces, which is linked to its plans for a new ‘Silk Road’. As was the case in the US, this will spread economic development more evenly across China.
  • Cleaning up the environmental mess left over from unfettered industrialisation. Human waste was carried in American rivers for centuries. As the Industrial Revolution progressed, water pollution became a major crisis. This continued well into the twentieth century. The Cuyahoga River in Ohio caught fire several times since the 1930s because of oil slicks and flammable industrial waste dumped in it. It wasn’t until the enactment of the 1972 Clean Water Act that many of these challenges were addressed. China is now going through the same process.
  • The US has long sought energy independence, via both exploiting its domestic hydrocarbon reserves and through geopolitics – for example, its critical post-World War II relationship with Saudi Arabia. Arguably, without this relationship, which has guaranteed cheap Saudi oil in return for US military and political projection, America would not be where it is today. China understands this. It, too, will seek to achieve energy independence – by whatever means necessary.

America is a fiercely proud country, and quite rightly so. So is China and, as my contact in Singapore pointed out, “To draw another comparison with the US and my country, we also hate being patronised.”

I think it is essential, therefore, that CEOs of chemicals and other companies bear this in mind in all their dealings with senior Chinese politicians.

Should China even be thought of as a developing economy anymore? Yes, but only because all the world’s economies are now, in effect, “developing” as the arrival of the New Normal means that old economic, social and political models will not work anywhere.

Development will involve partnerships between governments and companies everywhere.

In China’s case, this means that CEOs will have ideally already sat down with the country’s senior politicians and asked them questions such as: “How do we help you clean up your rivers and your air? How do we help  you develop the products and services you need to escape the ‘middle income’ trap’ ”?

If your CEO hasn’t already had these meetings, there is no more time left to lose.

And finally, it is wrong to assume that China will be grateful for chemicals and polymers and imports on terms dictated by the West.

For example, if cheap polyethylene imports from the US start damaging local companies these imports will be stopped.  Local companies petrochemicals companies are, of course,indivisible from the state as they are mainly state-owned.

Imports of chemicals and polymers will always have to add value to China’s economy.  They will never be allowed to subtract value.

If you don’t believe me, look again at the history of the US and its use of trade protectionism during certain phases of its economic development.