Wisconsin Public Radio

Manufacturing is still critical to the economy United States. Clyde Prestowitz, says it's time to start realizing the positive spillovers that manufacturing creates... Read more  

Events & Activities

Stephen Olson at Chinese Development Institute Conference


 Clyde Prestowitz giving presentation to CDI...


Steve Olson teaching trade negotiations at the Mekong Institute...


Stephen Olson to speak at upcoming workshop organized by the International Institute for Trade and Development on 

"Economics of GMS Agricultural trade in goods and services towards the world market"

Chiangmai, Thailand Sep 8-12.

(07/08/2005) Clyde Prestowitz mentioned in the Seattle Post-Intelligencer

(07/08/2005) Clyde Prestowitz mentioned in the Seattle Post-Intelligencer
Seattle Post-Intelligencer (WA)
(c) Copyright 2005 Seattle Post-Intelligencer (http://seattlep-i.com). All rights reserved. Reproduced with permission of the Seattle Post-Intelligencer.
July 8, 2005

Section: Editorial
TOM THOMPSON    Guest columnist

The war on terror is so visually dramatic that its gruesome headlines and sound bites actually limit our view of the larger world. In fact, those life-and-death themes often mask an otherwise mustard-or-mayo complacency about broader, even revolutionary change.

The global economic forces that with increasing speed are now altering the United States' economic future are an example. The trends are downright alarming as the post-World War II prosperity that so many Americans still take for granted is clearly imperiled - in my view, irreversibly so.

Because each year the United States consumes roughly $700 billion more than it produces, it must borrow from abroad to finance its excess consumption. Foreign central banks provide the financing by buying U.S. Treasury bills and other financial assets. For the first time in history, they are reducing their dollar holdings. The nervousness of the European Union, Russia, OPEC, Japan and China about the possibility of a sell-off of dollars as the world's reserve currency may not make for bold headlines, but that doesn't mean that the dangers are any less real.

The chronically overvalued dollar and the export-driven growth and prosperity of so many other countries is causing a steady and sustained transfer of production and technology abroad while putting enormous downward pressure on U.S. salaries.

As a result, the question of how long an international economic system that even mainstream analysts call a massive Ponzi scheme can go on is worrisome, to say the least. The problem is that U.S. household debt is at an all-time high of 120 percent of household income. At some point it will not be possible to consume more unless salaries start rising, which for other reasons is not going to happen.

Strains in the system have been described in terms of a generally "shrinking" world, a "flat" world (by New York Times columnist Thomas Friedman) or as "the great shift to the east" (by strategic analyst Clyde Prestowitz). The essence of these notions is that billions of new entrepreneurial world economic players from China, India and the former Soviet bloc look to compete head-on in the globalization process that for the interests of many U.S. citizens is simply broken.

The Internet and global air express (and faster-than-ever containerized ocean transportation) have negated time and distance, along with standard economic assumptions that labor, capital and technology don't move between countries.

In virtually any manufacturing industry, the notion of "the China price" has become common. It is the price U.S. suppliers to other U.S. businesses have to match to keep their customers. The phenomenon is hardly limited to the consumer goods found at Wal-Mart.

These days Chinese imports mean not just products from low-tech industries with inexpensive labor. In addition to China's masses in the countryside, several hundred million urban Chinese have first-world skills. These are often well-trained mathematically oriented engineers and experimentalists. More significant, industrial solutions with high rates of brainware to hardware mean sophisticated results using simple, cheap equipment - an investor's dream.

Not to worry. For years we have been told by one pundit after another that the oallowing out of U.S. manufacturing capacity is not a problem, that we are becoming more of a service economy.

While that may sound reassuring, it ignores any fair-minded analysis of India's new, specialized role in the globalization process. There, a combination of skills, low cost, quality work and instant communication means that few aspects of our lives in Seattle will remain untouched as India has become the location of choice for global software and information technology services. India has become for the service industry what China is for U.S. manufacturing.

Even in agriculture, the United States, once the granary of the world, is under attack. We can expect to have a more or less permanent agricultural trade deficit as a result of shifts in world food production. In South America, Argentina and Brazil have become world-class beef-producing heavyweights. Additionally, Brazil in particular has the potential to bury much of the world in low-cost soybeans, as well as other grains.

The message is not that the United States has ceased to be the richest and most powerful nation the world has seen. But U.S. prominence and continuing high rates of consumption cannot be taken for granted. In every aspect of our lives, we have many very capable new competitors changing how smart and how hard we have to work.

Clyde Prestowitz suggests that we impress upon our children that among industrialized countries, U.S. 12th-graders are now in the zero percentile in science and only the 10th percentile in math. Their own self-assessment "feel-good" scores rank them No. 1, which leads me to remind my own high-schoolers that while they are very special to me, what they should want for themselves is to be very, very specialized, so that their jobs and careers are less likely to be outsourced. Their classmates and peers are now in China, or India, and the sooner they appreciate this significance the better prepared for the future they will be.

Tom Thompson of Bainbridge Island writes frequently on foreign affairs. He has made more than 60 trips to Asia.

Join our mailing list

Latest Publications

The Betrayal of American Prosperity.

The Trans-Paific Partnership and Japan.

Making the Mexian Miracle.

Industrial Policy and Rebalancing in the US and China.

The Evolving Role of China in International Institutions.


Contact us

Economic Strategy Institute

1730 Rhode Island Avenue, NW, Suite 414 |  Washington DC  |  20036
Ph (202) 213-7051  |  Fax (202) 965-1104  |  info@econstrat.org