"The history has already been written."
"The history has already been written."
Conclusion
American policy makers supported by misguided economists believe that ordering its companies to relocate back to the US could restore its economic glory as the leading manufacturer commanding almost 70 percent of the world's total production.
Enticing US companies is more of a pipe dream to restore the old glory where it once stood as a mighty economic powerhouse. It was the biggest wheat producer, the biggest steel producer and residually, the biggest car manufacturer, the biggest processor and exporter of meat and dairy products, enjoyed a monopoly in the production of aircraft and the biggest carrier, controlled the production, export and sale of oil, enjoyed a near monopoly in the distribution of the world’s top 10 agricultural products, and locked the export and sale of arms and ammunition to near monopoly.
American economic might was reinforced by the Cold War to define the moral virtues of democracy and freedom. The USIS and the Voice of America served as propaganda bullhorns, and supported by array of American magazines portraying western lifestyle. Hollywood movies put color and fantasy to the American dream, and bombarded the air waves with music that reverberated decadent American culture.
Every American businessman that travelled abroad was treated like maharajah just as every GI could pick a woman of his choice for a penny. American executives acted like swashbuckling cowboys arm-twisting local officials for concessions. As they would often say, the world is for them to grab. The glory projected that democracy and freedom is all for the taking.
But it was a fleeting moment in history now lost forever. The US dollar that used to rule the world was politicized to persuade the financial polices of other countries. But no sooner, the US found itself sponsoring proxy wars that unexpectedly drained their financial resources. The Cold War that begun in 1950 proved to be most debilitating.
As the leader of the so-called “free world,” the US found itself at war in the Korean peninsula. It involved itself in many conflicts until it ended up in disastrous defeat in Vietnam. Entrapped in a quagmire, the Vietnam War lasted for 10 years nearly causing the US economy to tumble. For the first time, the US economy was badly saddled with budget deficit, foreign debt and trade shortfall, all symptomatic of a dangerously sliding economy.
US President Nixon then conceived of resuscitating the strength of the US dollar. He discarded the 1944 Bretton-Woods Agreement that pegged the value of gold to 33 dollar per ounce. That means the dollar will no longer depend on the value of gold, but measured by the strength of its GDP.
That decision placed the world economy on a tailspin. The US dollar floated as it wished just as borrowers sunk deeper in debt because of depreciation to their currency. The Philippine Central Bank was forced to float (devalue) the peso and abolished the anti-usury law.
To allow countries with trade deficit to move on, the IMF facilitated the payment in "paper gold" or “special drawing right” where selected “rich” countries put their currency in one common basket. The members became free-loaders because the SDR allowed them to revalue their currency indirectly skipping the gold standard to make the dollar available.
From the original price of $33 per ounce, the price of gold rose to more than $1,684.76. This correspondingly increased the value of the dollar just as other currencies deeply depreciated. As the value of the dollar appreciates, the prices of US goods and services kept on increasing. Exporting countries dependent on the dollar saw the rapid decline in the value of their export, thus trapping them in debt.
The US, however, did not anticipate that increasing the value of the dollar would affect their local wage, cost of rent, value of real estate, interest on loans and services. On the whole, it affected the cost of living in the US.
US economists differentiated real wage from nominal wages to sustain the “living wage” of the wage earners, meaning the increases have to catch up with inflation which affected the prices of basic goods and services. For more than 20 years, real wage in the US has remained stagnant.
Many corporations naively entertained the idea that purchasing imported goods is cheaper and are thankful to the ever increasing value of the dollar without the thought that it could increase the cost of production and tighten the screw on employment in the US. Manufacturing and production steadily and silently declined.
The US then conceived of outsourcing production. Today, many are evaluating the effect of outsourcing. Some say it turned out to be the fastest instrument to “de-industrialize” the US economy. As one observed, it was the US car manufacturers that made good their revenge not only in killing the once-powerful labor unions but assisted in converting the heartland of the US auto industry into ghost towns.
The thought of issuing treasury bonds became their favorite financial band-aid. It allowed the US to adjust the flow of money by “quantitative easing.” Many speculators then loaned their treasury bonds as collateralized debt obligation to secure additional loan because the US Federal Reserve allowed the printing of money like that of Mickey Mouse money.
As said, the decoupling of the dollar from the gold resulted in the uncontrollable increase in the value of the dollar, giving rise to outsourcing and made trade deficit an existential factor to the US economy. This twin-evil result gave rise to increasing unemployment due to high production cost making US products uncompetitive and eventually led to de-industrializing the US economy.
To encourage US companies in China now to return to the US is much easier said than done. Already a great majority of them do not favor the idea. As one would say, it is like asking US companies to ride on a time machine because the policy would demand a reversion of the dollar to the gold standard that happened in 1973. This is a losing proposition considering the following:
First, relocating US companies could mean loss of the biggest market. China is their biggest market that relocation is inconceivable.
Second, many are willing to replace US companies that will relocate, and are qualified to produce quality and better products at lower cost.
Third, companies that may replace US companies could enjoy the advantage of the completed Belt and Road Initiative that restored the ancient Silk Road. This modernized railway now provides fastest and cheapest bulk delivery system to the vast market of Europe, the Adriatic, and Mediterranean and onward to Africa.
Forth, this now amplifies the importance of connectivity in trade, a factor no investor would ignore.
Fifth, companies that may relocate will still have to bring back their goods to China to avail of the trans-Asian railway for delivery of their products to Asia, Europe and Africa. China now stands as the most efficient and reliable cargo delivery system in the world.
Sixth, the integration of Asia and Europe through the Belt and Road Initiative increased trade, and by circumstance, could isolate North America because crossing the Pacific and the Atlantic would now be more costly.
To conclude, history has already been written by mankind. The blunder that has been done can never be rewritten just to erase that misjudgment. It was a US miscalculation that could ignite another world war or that mankind could just leap forward to build a community of shared future.