"America Has Lost the Trade War with China"

 

That's what Charles Hugh Smith believes.  He adds, "The real pain has yet to begin".

Whether we like to admit it or not--mostly not--the American economy is entirely dependent on manufacturing in China. America's short-sighted obsession with increasing profits to fund buybacks and golden parachutes for corporate insiders and vast fortunes for financiers has led to a dangerous dependency that has handed China tremendous leverage, which China is now starting to make use of. (And why not? Wouldn't the U.S. start using the same leverage if it could?)

A long-time U.S. correspondent who prefers to remain anonymous for obvious reasons recently shared his experiences with parts shortages and price increases from previously reliable suppliers in China. Here is his account of the disruptive shift in the supply chain of essential parts from China to the U.S.

China is laying siege to the USA by slowing down production and delivery of goods. It doesn't take much to hang up US production, just one missing item can do it. So much stuff is sourced through China they can affect all supply chains. Semiconductors are just the canary--because the chains are so long and complex, and specialized materials are required, etc. But it is happening everywhere.

I have a little manufacturing company and I am seeing this in supply lines. I sent an order to China for printed circuit boards (US prices are astronomical because of various factors). They don't get back for a week, then they quote, then I send money, then they sit on it, then I call and they say they are having problems with some process... etc. But all the suppliers are like this, it is not an isolated incident. They are sandbagging.

So just as in laying siege, the attackers have the food outside the castle and wait for the people inside to starve.

As prices rise the Chinese manufacturers take bigger profits so the slowdown effects on that end are mitigated. For products they do not have a monopoly on, like PC boards, they slow down. for things like LCD displays and NFeB magnets, the items become unavailable (try buying magnets on Amazon).

I have to say this is a brilliant idea on China's part, and no one on this side has realized the situation yet. This plan is straight out of Sun-Tzu. implications? inflation and shortages will continue for a long time... maybe forever. The only long-term solution is repatriation of manufacturing to the US. But it is going to cause some serious hurt, vastly more than the sanctioning of Chinese tech companies.

i just sent a request for quote for some radio chips I use to Alibaba. they are $1 each and there are many vendors. I sent notes to 2 vendors i used before and after 4 or 5 days got a ping back that my requests were cancelled. i wound up getting the parts--for 2x the price-- from Hong Kong, which at the moment seems to be something of a channel to the mainland. But I expect they will close that leak pretty soon.

. . .

And now the chickens are coming home to roost. Essential parts and feedstocks become unavailable for all sorts of flimsy excuses, prices double, triple, then double again, and since we've allowed our entire economy to become dependent on a handful of sources for these essentials because that dependency maximized profits, then there are no alternatives.

There's more at the link.

I keep an eye on developments like that whenever I can, and overall I'd say they bear out the picture painted by Mr. Smith's correspondent.  For example, a local air-conditioning contractor was hired to install new air-conditioning systems in a nearby high school.  They ordered more than 150 units, to be installed on the roof of the buildings in a complex pattern and networked together.  The units were supposed to be delivered during the first week in June . . . but they didn't arrive.  The manufacturers in China first pleaded COVID-19 as an excuse, then blamed shippers for delays in getting the goods across the Pacific Ocean.  They finally arrived last week - and they're supposed to be installed and running by the time school reopens in three weeks' time!

A friend who works for that contractor says they're going to be running almost 24/7 at breakneck speed to get the job done.  Meanwhile, if any of their other customers have an A/C emergency, they probably won't be able to help them - they'll have to refer them to other companies for support.  That, in turn, may damage their long-term relationship with those customers.  So, supply problems from China have turned into an albatross around their neck, disrupting almost every aspect of their normal operations.

I'm noticing similar delays in getting parts and components in other industries.  For example, certain car parts are now so hard to get - particularly computer chips - that I know some folks whose vehicles will be out of action for literally months until their servicing dealers can get replacements.  Meanwhile, they're having to rely on co-workers to hitch a ride, or even hire cars medium- to long-term if their jobs rely on their having their own transport.  Similarly, if you work with firearms, you'll have noticed that many accessories such as red dot sights and telescopic sights - almost all made in China in the low- to medium-budget price ranges - are sometimes in short supply, possibly forcing you to buy a different model from what you wanted.  Other injection-molded plastic components like stocks and handguards may be subject to long delays, or just vanish from vendor Web sites altogether until one day they reappear without explanation.  I've taken to keeping a few critical items in reserve, even though I don't need them at once, just so that if I do, I don't have to wait.

Reading Mr. Smith's views in the light of last Saturday's discussion of China's grand strategy to displace the USA's influence, it's not hard to see many points of convergence.

Peter