World Trade

We re all working together; that s the secret. And we ll lower the cost of living for everyone, not just in America, but we ll give the world an opportunity to see what it s like to save and have a better lifestyle, a better life for all. We re proud of what we ve accomplished; we ve just begun.

— Sam Walton (1918-1992)

The United States imported 276 billion pairs of Chinese shoes in 2003. Three of every four toys in the world were made in China during 2003, as were two of every three pieces of children s clothing and eight of every 10 artificial Christmas trees. Further, that year, China produced 1.9 trillion cigarettes, 54,000 tons of Vitamin C (1/3 of the world s use) and 2.3 billion condoms.

— From L Express magazine, December 6, 2004

A Beijing-based news website, China Economic Net (CE.cn), owned by China s Economic Daily business newspaper, reports that China s central bank is purchasing U.S. Treasury securities to help preserve the stability of the exchange rate of the Renminbi (the people s currency ) and to keep U.S. prices and interest rates stable so the American middle class may continue to enjoy [its] shopping spree in Wal-Mart stores.

Washington Post columnist Robert J. Samuelson, on November 17, 2004, wrote that China and other Asian countries have purchased more than $1 trillion of U.S. Treasury securities. He said foreigners own 13% of U.S. stocks, 24% of corporate bonds and 43% of U.S. Treasury securities.

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Foreigners invest approximately $1 billion in China every week. Investment in the first 10 months of 2004 reached $53.8 billion. In all, the United States imported $179.2 billion from China in 2004.

The long-range effect

America s massive absorption of Chinese-made goods may have a damaging, long-range effect on our economy, because China is using its profits to buy U.S. securities. This loan holder position affects our currency and gives that country sizeable political influence.

On February 4, MarketWatch.com s (a subsidiary of Dow Jones and Co.) business writer Greg Robb, reporting on a recent speech by Federal Reserve chief Alan Greenspan, wrote that the growing U.S. current-account deficit has been a top worry for economists that monitor the global economy.

We re accustomed to reading of the U.S. trade and budget deficits. The current-account deficit, or balance, is different. It s the disparity between a country s savings and its investments. Economists determine it by subtracting a country s dollar value of exported goods and services from the value of imported goods and services, and include the net return on foreign investments. A positive balance indicates the extent of that country s savings invested abroad; a negative balance tells the amount of domestic investment that s financed by foreigners.

The U.S. current-account deficit — estimated at $650 billion in 2004 — is a measurement, not a debt or liability. It transforms, however, when foreigners use their profits to buy corporate and government bonds.

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For many years, the federal-budget deficit has been largely financed through U.S. Treasury bond purchases made by U.S. trading partners, particularly China and Japan. These two nations, and others, have, in effect, been loaning the United States $1.8 billion every day to buy, in essence, their exports. They buy our bonds — the same as buying U.S. dollars — to keep their own currencies weak and thus make their exports cheaper for us to buy.

Greenspan has said that foreign intervention may be supporting U.S. Treasury offerings — securities and bonds — and, in part, the dollar. He said the effect is difficult to pin down, that the current international environment has little relevant historic precedent.

Robb said, Some economists fear that an unknown event could trigger a foreign flight from American assets and cause a spike in U.S. interest rates, hurting the U.S. economy at a time when it is the only engine for global growth.

How did this happen?

Because America s economy has grown faster than other economies, its consumer demands are higher. This creates a demand for imports. Oppositely, other countries slower growth limits U.S. exports. There s also the strength of the dollar.

The strength or weakness of the dollar depends, usually, on the U.S. trade deficit and the U.S. budget deficit, but it s also affected by low interest rates. In everyday life, a strong dollar is a good thing — it keeps the prices of BMWs and Sony DVD players down.

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Oppositely, a weaker dollar makes U.S. exports cheaper. Thus, American products can be competitively priced in overseas markets, and this increases U.S. manufacturing production and, in turn, employment. However, it also raises American consumers prices on imports, meaning BMWs and DVD players cost more. A declined dollar, economists say, trims Americans desire for imports and consequently decreases the U.S. trade deficit.

This is good, up to a point, but a severely weakened dollar could cause myriad problems. Among them is that overseas investors may lose confidence in the U.S. economy, thus becoming less willing to invest in its assets.

China, by the way, ties the value of its yuan to the dollar to help it absorb these fluctuations.

A discordant dollar could severely devalue foreign investments in U.S. assets, causing foreign investors to unload their U.S. Treasury securities, bonds and corporate stocks. This devaluing may initiate a stock-market slide, which might cause a drop in American consumer confidence and spending. Simultaneously, import and export prices could rise, and sales could decline, causing manufacturing orders, and jobs, to fall off worldwide. Thus, a global recession may possibly occur.

The Wal-Mart factor

Sam Walton founded Wal-Mart and Sam s Club in 1962, in Rogers, AR. Five years later, the company had 24 Wal-Mart stores in place, with sales totaling $12.6 million. Today, the company garners 8% of U.S. retail sales. Its website says, In 2004, Wal-Mart sold $256.3 billion in goods to the 138 million customers that shop at its 3,600 stores every week, to be helped by 1.6 million employees.

Laid end to end, 256 billion dollar bills would circle the earth s equator 1,024 times.

You ve seen Sam Walton s photo on the cover of his book, Made in America. In the photo, he s wearing a dark suit, white shirt, tie and, inharmoniously, a white ball cap with Wal-Mart lettered across the front. At first glance, he appears as an all-American, small-town businessman. His face, manifesting a win-win attitude, is thin, creased and farmyard tan. The eyes say he s hatchet sharp; they also say he keeps his word. There s a trace of Jed Clampett in the photo.

Remarkably unpretentious, Oklahoma-born Walton was an intriguing corporate captain. He chose to drive a 79 Ford F150 pickup and enjoyed hunting birds in the fields near his Arkansas home, with his purebred dog, Roy. I believe he truly wanted, as he said, a better life for all.

A 1986 photo of him, taken by AP photographer Steve McHenry, shows Walton speaking to a business group. He s wearing a dark suit with a nametag pinned on the lapel. In this photo, he s more akin to Barnaby Jones than Jed Clampett. The photo caption says, Sam Walton in 1986, making a case in Little Rock, AR, that buying American products could be the answer to the country s trade deficit.

Sam Walton died in 1992, from bone cancer. In 2004, Wal-Mart imported $18 billion in goods from China.

I confirmed this number with Beth Keck, Wal-Mart s director of international corporate affairs. She said, Wal-Mart and its suppliers sourced approximately $15 billion in goods from China in 2003. In 2004, we sourced about $18 billion from China.

Eighteen billion one-dollar bills –10% of the United States total 2004 imports from China — would circle the earth 72 times. CE.cn, commenting on Wal-Mart s massive China purchases, said it s one of the causes of the China/U.S. trade deficit.

Buy China?

Should we, then, not buy Chinese products? No, we should. Thus far, China has proven to be an economic ally, albeit a puckish one. We can t compete with its labor costs, and, in some ways, its inexpensive products help us control inflation. Besides, it s 2005, and the world is too small to ignore any reasonable trade opportunities. However, considering China s influence on America s economy, we should develop some sense about it, like, perhaps, buying less of Wal-Mart s plastic toys and trinkets.

Ultimately, we need to reduce our national debt and, by that, depend less on other nations economies. We can help balance the situation by exporting more American-made products to China, although the Chinese government doesn t seem enthusiastic about this.

Another method is to spread the wealth by producing joint-venture, Toyota business-model enterprises with China. For example, by next year, Toyota USA, a Japanese company, will have the capacity to build 1.66 million cars and trucks and more than one million engines, annually, in North America, meaning the United States and Mexico. It currently builds 11 car and truck models and employs approximately 34,000 people in these regions, and has made a foreign direct investment of nearly $14 billion. Additionally, Toyota buys $20 million from American suppliers — parts, materials and goods.

Like Toyota, an American company can develop in-country, joint manufacturing and sales operations with China, bringing business to both sides. America s Big Three auto manufacturers do this now. The profits return, in part at least, to the American-based companies. Future ventures should encourage Chinese foreign direct investment in the United States.

Scitex seizes the lofty perch

A February 1 Scitex Vision (Netanya, Israel) press release says: |2433|, a global leader in industrial digital printing, announced its strategic-partnership agreement with Beiren Group Corp. [Beijing], the largest printing machinery manufacturer in China. Scitex Vision is a developer, manufacturer and service provider of digital-printing presses and consumables for digital-print applications, including wide-format graphic arts, packaging and textile operations. It has subsidiaries in Atlanta, Brussels and Hong Kong.

Initially, the release says, China-based Beiren will manufacture and assemble Scitex Vision s entry-level, grand-format digital printer, the Grandjet Classic. The agreement also opens other joint-product possibilities. The firms intend to co-market the printer in China.

Beiren Group Corp. has nine dedicated sales companies, 60 sales subsidiaries and 50 training service/centers in China. Interestingly, the company says its main strategy is to seize the lofty perch.

Scitex isn t the first Israeli-based company to move manufacturing to China. Matan Digital Printers Ltd. s TeckJet™ line of grand-format, digital-inkjet printers are built by China-based Shanghai Teckwin Development Co. Further, DuPont Imaging Technology (Wilmington, DE) offers three, made-in-China, digital printers, plus, Raster Printers Inc. (Palo Alto, CA) and Redhill Inkjet LLC (Center Harbor, NH) have digital-print machine manufacturing liaisons with Chinese manufacturers.

Gerber s China operations

In the spring of 2004, Gerber Technology began manufacturing the Infinity™ AE digital-inkjet printer at Gerber Scientific (Shanghai) Co. Ltd., the Shanghai-based business unit of Gerber Scientific Inc. (Gerber Scientific Products). The Shanghai unit is a wholly foreign-owned enterprise (WFOE), meaning a Chinese limited-liability company that is wholly foreign owned, but limited by its registered capital. WFOEs bypass the traditional need for a local Chinese partner and can bill in local currency and remit profits overseas.

Gerber Scientific Inc. (South Windsor, CT) comprises five businesses: Gerber Scientific Products and Spandex PLC (digital signmaking systems, software, materials and accessories to the sign and allied industries); Gerber Technology (computer-controlled systems for product design, fabric cutting and materials handling in various industries, including automotive, apparel and aerospace); Gerber Coburn (computerized prescription-lens processing equipment and supplies); and Gerber Innovations (digital die-making and coating blanket cutting systems for packaging and commercial printing).

Relevant press releases say the Infinity AE was designed and engineered at Gerber s headquarters in Connecticut, but built in China in order to reduce, when sold in that country, freight expenses, shipping costs and import duties. It s a Toyota-like business plan: manufacture in China, sell to the Chinese, bring the profits home.

Gerber Scientific (Shanghai) Co. recently invested more than $2 million in a new, 27,000-sq.-ft. Advanced Technology Center (ATC). The new ATC is located in Shanghai s Caohejing Hi-Tech Park. It also accommodates Gerber s Engineering Technology Center s Shanghai-based sales and service operations, and houses a factory-simulated environment for displaying Gerber Technology s cutting systems. Further, it displays the company s plotters, computer-aided design and WebPDM™ product lifecycle-management systems.

WebPDM software, used by such companies as Perry Ellis Intl. Footlocker, Talbots, Kohls, JCPenney, K-Mart, Federated Department Stores and Li & Fung, enables manufacturers to communicate with retailers, factories and product-development teams, to track details related to a product. Li & Fung, the Hong Kong-based company that assisted Levi Strauss & Co. in moving its Signature-brand operations to China, lauds the system.

Natural balance

In summation, I m sure you ll agree that it s not smart to let anything, especially your debts, get out of balance. And, I d add that Americans should perhaps acquire some sensibility about their Wal-Mart shopping sprees. Further, the economic observations cited here don t consider the share of the Earth s resources used by Chinese manufacturers to vacuum-form the billions of plastic toys sold (or offered as Happy Meal inducements) to America s children.

Finally, the world moves forward, not back, and international trade, although sometimes rocky, is superior to technological isolationism. I d add, however, that it works even better when participating foreign companies establish shared manufacturing sites in the United States. Scitex Vision