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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

October 13, 2010 at 9:32 AM

The dragon in the living room: China increasingly dominates the economy

News you might have missed:

— A team of seasoned Silicon Valley entrepreneurs attracted billions of dollars in a bid to dramatically lower the costs of solar panels. Their hope, according to the New York Times, was that the venture would “make them the Intels and Apples of the global solar industry.” Instead, that honor is going to the Chinese.

Chinese manufacturers, heavily subsidized by their own government and relying on vast economies of scale, have helped send the price of conventional solar panels plunging and grabbed market share far more quickly than anyone anticipated. As a result, the California companies, once so confident that they could outmaneuver the competition, are scrambling to retool their strategies and find niches in which they can thrive.

— As BHP Billiton makes a hostile bid for Potash Corp., it’s expected that a group of state-owned Chinese companies and financiers will emerge with a rival offer. Potash is the largest maker of fertilizer in the world. As the NYT’s Andrew Ross Sorkin observes, “45 percent of Potash’s production is sold to farmers in North America. The big worry, in part, is that the Chinese could seek to redirect that supply to China, starving other countries of a much-needed commodity.”

— General Motors is celebrating a wage-cutting deal that it says will allow it build a profitable sub-compact car in America. Good enough. But instead of the $28-a-hour experienced auto workers make, new hires and even those returning from furlough will make $14-an-hour. Now, spare me your anti-union rants. It’s hard to see how we get a rising middle class when these kind of draconian cuts are expected — and accepted by frightened workers.

Conclusions:

— America lacks any realistic strategy to compete with China’s state capitalism, especially given how in hock we are to China for financing our military adventures. As China corners renewable energy, builds high-speed rail, etc., we struggle to keep libraries and schools open.

— Monopolies and cartels are never good. What regulator — Canadian or American — thought it was smart to allow Potash to get this big? But in addition to the dangerous pricing power of monopolies and cartels, they present nice targets for the Chinese to gain further economic power.

— Will the American people, already facing horrendous unemployment and stagnant incomes, really be willing to see their living standards fall to meet those of the Chinese and workers in other developing nations somewhere in “the middle” — just to get cheap junk from Wal-Mart? I don’t think so, and that means the pressure to change the existing trade arrangements will only grow. And with growing competition for scarce resources and markets, instability will increase. Just ask the People’s Liberation Army, which is as much a business as a defense force.

Today’s Econ Haiku:

Will big business buy

The Congress in November?

Tee time, not tea time

Comments | More in Canadian economy, China economy and business, Income/living standards, International economy, Jobs/Unemployment

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