We watched Frontline’s show about Wal-Mart last night. Wal-Mart’s incredible power in the marketplace is not new information, but the extent to which Wal-Mart is benefitting China is new to me.
Wal-Mart’s mission to drive prices down for American consumers has the effect of squeezing American manufacturers to the point of bankruptcy, given that they can only go so low on wages to their employees. But China’s labor costs are extremely low, so Wal-Mart is increasingly relying on China’s manufacturers to give Americans their low prices.
That’s great for China, obviously, but maybe not so good for America. As one interviewee points out, it’d be wonderful for Americans if Americans were consumers only because they’re saving money, but Americans also need jobs. And this has a profound effect on our trade deficit – the US exports $3 billion worth of goods to China and imports $36 billion a year. In fact, our exports (raw materials, mostly) are being used by the Chinese manufacturers to build products that they sell back to us.
One American company fought back, though, and won. Five Rivers, an American manufacturer of television components, sued and forced anti-dumping tariffs on China. This effectively increased the costs to Chinese manufacturers for television components (Wal-Mart helped to defend the Chinese manufacturers in the legal case). But it may have been too late for Five Rivers – they filed for bankruptcy last month.
What made America strong economically, a large population of consumers with money to spend, could come to an end given that our jobs are decreasing in pay. With four times the population and increasing wages, China’s larger market of wealthier people could make China the economic superpower that dwarfs America’s economy.
Is this simply capitalism running its course? Is it the global economy being realized? Is Wal-Mart a company that is transforming American retail business to the benefit of the American economy? Or is Wal-Mart single-handedly turning China into an economic superpower? Will today’s merger of K-Mart and Sears, two of Wal-Mart’s victims, create a second Wal-Mart and increase our reliance on China?