Safety concerns about good produced in China topped the world news in 2007, with two-thirds of the recalls the United Stated Product Safety Commission issued in January to June tied to Chinese made products. In many cases the Chinese cried foul at the recall and even began to issue warnings of its own against American goods, mostly food stuffs, being imported into China. But it all adds up to an international political economy question that must be resolved by more stringent actions than single product recalls and a pissing match between two of the globe’s nuclear powers. To understand the resolution to the conflict and even the depth of what it means to the world’s economy, we must first understand what happened and try to identify why and how it happened.
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For most Americans, the issue of Chinese imports came to the forefront in February and March of 2007 when virtually every type of wet cat and dog food on the market and several dry varieties were recalled. At the beginning of the recall, the Product Safety Commission was even sure what was wrong with the product, except that it was causing high incidents of kidney failure in household pets. Eventually, the problem was linked to melamine, a form of plastic, in the rice gluten imported from China to make pet food (AMVA, 2007). Soon thereafter there was a recall on Chinese toothpaste contaminated with the chemicals that make anti-freeze poisonous, a ton of toys recalled for use of lead paint and just recently, a toy recalled because it contained a chemical similar to the date-rape drug GHP(greentimes.org, 2007).
The underlying cause of all these recalls is unequal capitalism throughout the world. At the turn of the 20th century in the United States, Upton Sinclair wrote a Pulitizer Prize winning novel called “The Jungle” which outlined the horrors of the food-packing industry. Though more recent research shows that some meat-packing plants are still far from sanitary, “The Jungle” forced a sort of mandated correction on the American factory system. Then, with the addition of the Occupational Safety and Health Administration to protect workers and the increase in union strength leading up to World War II, Americans demanded that their government protect the workers and the consumer from potentially dangerous items.
The very litigious nature of the American society may have contributed somewhat to the development, but the short version was that American companies developed a form of self-policing believing that capitalism with government regulation worked. But then in the last decade or so, the world became more interdependent and American companies began to send work to other areas, areas without a history of free enterprise and legal battles over product liability. They thought that specifying in a contract that toys could not be painted with lead-based paint would make it so. And, they thought that they could get all the protections which are built into the American factory system for a fraction of the price. They were wrong.
Further complicating things is that America companies misunderstood the world. They assumed that all people would have the same values and belief systems as they did. No one ever took into consideration the sociology of the place that they were doing business with. In Communist China, workers who got a little sick, or even died from their toothpaste, would not be filing multi-million dollar lawsuits over the affair. And, certainly no one would be think they should be compensated because the dog or cat food killed a pet. Lead paint was the cheapest, so of course they would use it on their products, who wouldn’t? In the consumer-driven American society, companies could not imagine anyone being so careless with the health of their customers as to poison something that is designed to be put in the mouth or add plastic to pet food.
The complete disparity of the social equation then leads to a compounding of the political differences between the two countries. From the perspective of the American public, the Chinese has created products that:
From the Chinese perspective, American consumers were spoiled and overreacting. To some, it appeared that the Americans were subjecting everything to stringent standards that they would not hold themselves to. And, the Chinese government reacted by inspecting and rejecting American imports headed for China, claiming that food was contaminated with ants and that soybeans were laced with mold (“China rejects”, 2007). And, aside from the few hundred people worldwide affected by the product recalls, the real victim in the entire mess is the trade balance between the United States and China and the impact that the recalls have on consumer confidence in the United States.
China has been granted most favored nation status by the United States, meaning that there are few tariffs on goods imported from China. And, china has a favorable balance of trade with the United States meaning they export more to the U.S. than they import from it, a good place for them to be in terms of world economies. But having millions or even billions of dollars of products returned because of product safety recalls. The only to keep the Communist government happy is to minimize imports during the time that the exports are curtailed. And, then you have two ideologically different government in a grand argument over whose products are more tainted. The only winner in that scenario is a nation that is uninvolved.
The first people who suffer are those who lose out because of the lost imports. For the American consumer, the first Christmas season without Chinese toys will probably be met with a sigh of relief and the mistaken belief that they are avoiding the safety issues of the Chinese imports. But as prices rise and the basic costs of living increase, the loss of the international imports will hurt the American economy. On the other end, the loss of the American imports will hurt the Chinese populace much more rapidly. Most of the American imports being turned away were food products and with 1.3 billion people, China needs to import for its people. Food production was up this year in other parts of the world, but the American breadbasket does feed large hunks of the world. If American soybeans are turned away, china has to look elsewhere for its food.
Even more worrisome from an economic standpoint is the affect that the recall has on purchasing patterns and economies. In October, 2007, the American Treasury Secretary Henry Paulson said that consumer fear over the recalls is causing serious problems with the American economy (CNN, 2007). Paulson then called on both governments to work together to allay fears and avoid international financial repercussions related to the recall. In essence, Paulson is the only one involved in the entire process who seems to understand the political economy of the event and its ramifications. His comments clearly show the need for cooperation and understanding between the two economic giants. What remains to be seen is whether they can set aside the huge ideological problems at the national level and deal with the ideological different in how they operate businesses.
For example, the American government will have to explain that the 300 million Americans expect a certain level of safety in the things that they buy and will have to make the necessary financial concessions needed to improve the safety levels and the quality of raw materials in Chinese factories. American corporations will have to quit looking at China as a source of cheap labor and begin to make an investment into those factories if they expect them to meet American quality control standards. Furthermore, both sides will need to negotiate more clear contracts so that corporations can meet standards without a several month delay in discovering issues.
Unfortunately, the reality is that the two economies are already interdependent because of the global economy. But if American corporations continue to treat China as nothing more than a source of cheap labor, they will continue to have recall after recall that destroys corporate profits and undermines consumer confidence. Part of the requirement of a global economy is the development of global standards of production. No longer can we argue that lead paint is okay for the rest of the world, but not good enough for Americans. We have to be able to view people as citizens of the world and treat all its citizens equally.
The nature of economics is to always look for a way to increase profits, but in macroeconomics it is also necessary to look at the human costs and the environmental costs as well as the financial costs. If we are not willing to acknowledge that laissez faire capitalism is a thing of the past and that government regulation are an expected cost of producing goods, we will continue to have economic upheavals around the globe.
The only other alternative, from an American perspective, is to return to an isolationist policy and buy American goods only. That is a completely unrealistic solution, but it is the only one that will work if the world governments cannot step beyond their ideologies to discuss economics based on real world needs and not outmoded theories.
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