Made in China - the Effects of Outsourcing

[Lagboltz]

I do not think many people see a trade imbalance with say Canada as a problem. Why is all the focus on China? I understand how you use it, but most people don't seem to do that.

China is emblematic of sovereign wealth funds. Canada is not. In place of China substitute the phrase "Pacific Rim and Middle East" They all have huge sovereign wealth funds and are gaining on the US in economic power.

On top of that, the manufacturing industry in this country is not going to simply be gone. It will be scaled back perhaps, but if demand picks up, there is a rapid influx of money. It will not be a "new" industry that has to emerge.

America can rapidly pickup low tech industries again, but not high tech industries. As I said before there is too much heavy investment and cash flow problems. The turn-around would be many years in the making.

I guess I just buy into Friedman's argument that a trade imbalance does not matter all that much. The imbalance, to me, simple means that consumers had an opportunity to purchase and enjoy more goods at lower prices; on the flip side, a trade surplus implied that a country was exporting goods its own citizens did not get to consume or enjoy, while paying high prices for the goods they actually received. Also, all the money that is sent overseas in terms of this imbalance eventually makes its way back to the United States in the form of investments.

Money paid overseas to our "lenders" typically comes back to the US in the form of investments. I do not see it as the US loses out on 9% a year in interest, but rather that 9% comes back in investment form.

Friedman said those things when the country was doing well. Macroeconomists believe imbalance really does matter during a depression or recession, especially when the imbalance is huge, and the debt is huge and foreign investment dollars comes from the imbalance.

The foreign investment is buying up parts of our country; all for our short term benefit. Perhaps you don't mind, but future generations will. Our debt allows our financial and manufacturing industries to be sold to other countries. The debt is growing exponentially, and tax revenue will never catch up. Foreign buying will accelerate. Maybe you don't care about the increasing foreign ownership of our country. Most do.

All of that wealth comes back long term, so I guess I do not really see the issue.

I agree, you really do not see the issue.

 

[BigRob]

China is emblematic of sovereign wealth funds. Canada is not. In place of China substitute the phrase "Pacific Rim and Middle East" They all have huge sovereign wealth funds and are gaining on the US in economic power.

So what?

America can rapidly pickup low tech industries again, but not high tech industries. As I said before there is too much heavy investment and cash flow problems. The turn-around would be many years in the making.

All this talk of losing industries. Foreign manufacturing has been coming into the South for years and they are not struggling. A bankrupt GM does not mean the manufacturing base is dead.

Friedman said those things when the country was doing well. Macroeconomists believe imbalance really does matter during a depression or recession, especially when the imbalance is huge, and the debt is huge and foreign investment dollars comes from the imbalance.

It either matters or it doesn't. All the money that is sent overseas and "borrowed" comes back to the US economy in the long run. Economies go in cycles, economic theory should not.

The foreign investment is buying up parts of our country; all for our short term benefit. Perhaps you don't mind, but future generations will. Our debt allows our financial and manufacturing industries to be sold to other countries.

You are right, I do not care that a foreign company does business in the United States or owns an American business. The only way that matters is if they buy the business and then disband the entire thing, which does not make much sense to an investor, which is basically what these companies are.

The debt is growing exponentially, and tax revenue will never catch up. Foreign buying will accelerate. Maybe you don't care about the increasing foreign ownership of our country. Most do.

No one seemed to care when we were off buying up the world. Foreign ownership is not a bad thing.

I agree, you really do not see the issue.

You mean I do not see the issue "your way" and am hence "misguided." Spare me the rhetoric.

 

[Lagboltz]

This list of some of the major foreign acquisitions of US companies in 2008 came from an article by a professor of macroeconomics. Some of these acquisitions are disquieting.

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Borse Dubai, the stock exchange which is part of the United Arab Emirates, purchased for $49.20/share a 30% stake in the stock of NASDAQ OMX exchange in the United States as part of NASDAQ’s merger with OMX in February, 2008.

Acer Inc. of China just purchased Gateway Computers of Irvine, California for $710 Million. They are now the third largest PC vendor in the world and Lenovo of China is fourth. Toshiba and Fujitsu of Japan are the fifth and sixth largest vendors of PC’s. Dell Computer recently announced that it is selling many of its manufacturing plants. Asian PC computer manufacturers will eventually have complete control of the industry. Once the acquisition is complete, Hewlett-Packard will be the only US PC supplier left.

WuXi PharmaTech of China purchased AppTec Laboratory Services, Inc. of St. Paul, Minnesota, which offers research and testing services to pharmaceutical companies, in January, 2008 for $151 Million and the assumption of their debt. Some of the jobs will now move to China.

China Life Insurance Co. bought $300 million of the IPO stock of Visa Inc. in February, 2008. The U.S. financial services co. CIT Group Co. is looking for additional capital. The Chinese will probably oblige.

JBS SA of Brazil began in March, 2008 the buyout of Smithfield Beef Group Inc. and National Beef Packing Co. for a $1.1 billion offer. When that is completed, that would make them the largest U.S. meatpacker and another American industry would fall almost under complete foreign control.

In April, 2008, the Advantage Partners, Japan’s largest private equity firm, purchased GST AutoLeather Inc. of Southfield, Michigan for $300 million. Automotive supplier are part of the Asians purchasing control of U.S. auto industry.

The Government of Singapore Investment Corporation, the Sovereign Wealth Fund of Singapore, invested $3 billion in May in Citigroup Inc. They along with the Saudis are the largest stockholders in this New York City bank and their combined ownership is around 35%. They effectively control the bank.

The Japanese firm Konica Minolta’s acquired of Danka Business Systems in St. Petersburg, Florida. This will permit the Japanese to have a direct distributor for their copiers and to eliminate a large distribution channel for Xerox and other American companies. The sale price was $240 million and the Japanese closed the deal in June, 2008.

OAO Severstal of Russia reached an agreement on 5/17/08 to purchase WCI Steel, Inc. of Warren, Ohio for $140 million plus assumption of $230 million of debt. WCI produces flat-rolled steel products and is another signal in the death of U.S. ownership of steel companies. India, Japan, China and Russia are taking over the steel industry while this country gives up ownership of most its steel producers.

India’s Essar Steel and Russia’s OAO Severstal are in a bidding war for the U.S. steel company Esmark Inc. in May 2008. The U.S. has become a minor player in that industry.

India’s Vedanta Resources PLC reached a deal in May, 2008 to purchase the assets of the U.S. copper mining company Asarco, LLC. The Mumbai, India based company agreed to pay $2.6 billion for the mining company. The sale marks the rise of the Asian commodities companies and the vanishing presence of U.S. companies in the business. The developing countries are rapidly replacing the U.S. and Europeans in commodities.

In June, 2008, Dubai Multi Commodities Centre which is a part of Dubai World said it invested $250 million in five U.S Hedge Funds. The funds are Tocqueville Asset Management, Black Rock Inc., Zweig-DiMenna International Managers, Ospraie Management and Lucas Capital Management. The Arabs want to merge Wall Street with Islamic hedge fund investments. The new Arabic trading platform is dubbed “Al Safi” according to the WSJ.

Asian and Arabic countries are also buying into other European industries that will compete with US industries. The following foreign purchase is a bit unsettling.

The China National Offshore Oil Corp. in July, 2008 is in the process of buying Norwegian oil drilling contractor ASA for more than $2 BILLION. China is planning to break into the world-wide oil field services business so that more countries can become dependent on them to assist them in oil drilling. There is a current shortage of oil drilling rigs and this is shrewd move on the part of the Chinese.


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Those are the major acquisitions of 2008.

If a foreign country started a military invasion, as in Pearl Harbor, you can bet that, the US would defend itself again with infinite resolve. However, there is a much more subtle economic invasion happening. Foreigners already own most of US T-bills, and are now buying up our industries. There is a strange complacency among most Americans about what is happening.

“Give Me Your Tried, Your Poor, Your Huddled Masses”
We were once the New World where immigrating people came to start a new life. Now we are a country where the immigrants include entire industry sectors that increasingly crowd out ours. As our debt grows these acquisitions will accelerate.

Foreign ownership is not a bad thing.

I sincerely hope you are right. It now seems inevitable. I don't think it's a good thing, but we will see how it plays out in the next few decades.