American freedom made in China

By Daryl Guppy

Recently I received an ironic joke photo of a parcel box. In large letters the product's name was "AMERICAN FREEDOM." Under the name, in smaller print it read "MADE IN CHINA." However, on reflection, this is not an ironic joke because America's freedom today to do as it pleases and live as it pleases rests largely on Made in China.

Freedom is not an abstract liberal concept. Practical freedom is freedom from hunger and poverty. It's freedom to live as you wish enabled by decent wages and with aspirations to reach the obscene salaries paid to senior executives and boards. It's the freedom to select from a wide range of consumer goods designed to improve living standards. Freedom is largely a product of an affluent society and globally China has an important role to play in this.

Let me explain.

China's first contribution to economic growth and the freedom it engenders is decades of deflation with falling prices. Consumer and industrial goods are of better quality and available at cheaper prices. It is more profitable to do business because the cost of doing business goes down.

Of course, when tariffs are applied to Chinese goods then prices increase and you end up with inflation. It's a simple relationship that former U.S. President Donald Trump didn't understand.

The second contribution from China is high-quality technology made available at affordable prices. Huawei is one of the leading companies in this area, outstripping its U.S. competitors. This technology speeded up the development and adoption of 5G, artificial intelligence and the digital economy. America could not compete, so they continue to block this technology from spreading in other parts of the world. Those countries using Huawei are progressing at breakneck speed as digital economy advances.

Having production plants in China underpins U.S. firms like Apple. Their business model rests on products manufactured and assembled by skilled workers in China. This is not low-cost labor. This is advanced technical labor necessary to deliver cost-effective and innovative electronic products.

People work at a workshop of Harbin Dongan Automotive Engine Manufacturing Co., Ltd. in northeast China's Heilongjiang Province, February 25, 2021. [Photo/Xinhua]

Cheaper and more efficient production of goods underpins the Walmart business model. They are an extreme example, but by the cost of industrial production, the consumer and business benefit from work undertaken in China. Without China, consumers could not lead their current lifestyle and business could not continue to operate as they do.

The vast Chinese market contributes hugely to the profits of major U.S. companies like General Motors. GE sells more cars in China than in the U.S. Fast food companies, service providers and others rely on China for their super profits which underpin American prosperity.

The U.S. is the largest debtor nation the world has ever seen. It owes the world around an unimaginable $31 trillion that it has borrowed using U.S. treasury debt markets. China is the second largest holder of U.S. debt. When American presidents visit China they are literally going to meet with their banker. The American government is able to deliver its services largely because China agrees to fund its debt and borrowing.

If China dumped U.S. Treasury debt, it would increase the cost of borrowing for the U.S. government, push up the financing cost of U.S. consumers and enterprises and weaken the prospects of an economic recovery.

The same applies to Australia where the economy rests on sales of commodities like iron ore and coal to China. Its economy relies heavily on Chinese tourists and students. The Australian treasurer has the freedom to deliver tax cuts, expand infrastructure and defense spending, improve health and education services in large part due to the country's trade with China.

If the charges of debt diplomacy were true, then China with its huge hold over money lent to the U.S. by way of treasury bond purchases should be able to influence U.S. policy towards China. Unfortunately this is not the case.

Freedom relies on a  comfortable economy that underpins the growth of the middle class. This type of freedom is not something uniquely American. Without support from China, financially in terms of U.S. debt, and with inflation-busting goods and services, America would lose the economic strength on which its freedom rests.

The freedom from hunger, poverty and poor living conditions rests on economic prosperity. This rests on export income and steady improvements in productivity driven by lower prices and higher quality. China is the primary source of this global prosperity. China's great achievement is not just lifting millions of Chinese people out of poverty. China's achievement is in lifting the global standard of living.

So the parcel box delivery labeled "AMERICAN FREEDOM" is exactly correct when it also says "MADE IN CHINA."

Daryl Guppy is an international financial technical analysis expert. He has provided a weekly Shanghai Index analysis for media for the Chinese mainland for more than a decade. Guppy appears regularly on CNBC Asia and is known as "The Chart Man." He is a national board member of the Australia China Business Council.