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I anticipate Chinese made tools & machines will soon rise in price

3K views 30 replies 20 participants last post by  MrRon 
#1 · (Edited by Moderator)
I am 75 years old and have seen a lot. I watched the Japanese undercut the USA prices while making excellent cars and machines during the 1970s and early 1980s. I also watched the Japanese prices rise to equal USA cars and machines in the late 1980s and 1990s. I am now watching the same scenario with China. Add to that the very good chance that Donald Trump will soon be President and will demand parity on prices with China. I have read his thoughts on this before and I did again this morning. From the BBC:

"Mr Trump, in his campaign manifesto, pledges to "cut a better deal with China that helps American businesses and workers compete".

He sets out four goals that include immediately declaring China "a currency manipulator" and putting "an end to China's illegal export subsidies and lax labour and environmental standards".

Latest figures from the US government show the trade deficit with China reached an all-time high of $365.7bn (£250.1bn) last year. By February this year, it had already reached $57bn.

There was no immediate response from Beijing to Mr Trump's comments, but he is seen by many in China as an inspiration rather than an antagonist, says the BBC's Vincent Ni."

To add to this, China is experiencing a demand for higher wages and better working conditions which will continue to drive up the cost of Chinese made goods.

So I recommend to those of you who are building your shops to expect a considerable price rise in woodworking machines and tools in the next couple of years.

Me, I already have a very complete metal and woodworking shop that I have accumulated in the past 60 years when everything was much more expensive in comparable dollars. You are presently living in a "woodworker's heaven" with tons of top grade but cheap tools and machines. But like everything else, nothing is forever. I am convinced the "good times" are about at an end.

Planeman
 
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#2 ·
As my Dad always said, "Water seeks its own level".
I fully expect to see the China issue to be a major economic shifting format. The Chinese see the rest of the developed world as a living standard to be desired.
Who knows what the Chinese worker will "demand" in the future?
Bill
 
#3 ·
If Trump is elected then I hope he does it but I doubt it. I suspect he believes he will be a shot caller but the president can only do so much. Everyone in power wants to keep the status quo, that's why Hillary is getting money hand over fist. Outsiders like Bernie and Trump are unwelcome. If it happens though, the value of old iron will go up to.
 
#5 ·
Planeman, I think you are right. It could, as a consequence, bring back some manufacturing to the US. Labor that starts out cheap doesn't stay that way. Which is a good thing, I think. Remember how H. Ford started paying $5 a day (which pissed off the other tycoons), so his workers could buy the cars they were building?
 
#7 ·
I worked for 10 years in manufacturing (plastics, hair care items) and towards the end we started buying a LOT from Asia due to costs. Biggest issue I saw was if we had an "emergency" order we could change gears at the plant and shift other people to get the job done very quickly…. whereas an emergency order when we were importing from China STILL spent a month on the sea in shipping. (Unless of course we wanted to pay for air freight which ate up about 99% of the profits anyway)

It eventually led to the company importing 99% of the line today, versus we were manufacturing 80% and only importing 20% back in the 90s.
 
#8 ·
Keep in mind that we here in the USA had our heyday beginning just after WW-2 up until the mid 1980s. Pretty much the entire industrialized world was left in ruins and needed to rebuild and the USA was the only industrialized nation left to supply the rebuilding. We had the goods and there was no competition! Unions got greedy and demanded constant wage increases, retirement benefits, and easy working conditions. Manufacturers had no competition except other manufacturers within the USA who had the same union demands and that made for a level playing field. I remember when the auto union made it a practice to strike a different auto manufacturer (of which there were only three major ones - Ford General Motors, and Chrysler) every three years. The auto manufacturers gave in to the demands as they knew their competition would be facing the same demands very soon. The "playing field" was kept even. This all went well until the Japanese entered the car market in the late 1970s and vastly undercut the USA car manufacturers. It hasn't been the same ever since.

I lived through all of this and watched it happen.

Planeman
 
#9 ·
with the Chinese economic engine slowing down they will probably stay very competitive externally , while internally their citizens adjust to a higher standard of living and the age of consumerism.

I do agree the labor rate has risen and will continue , as it has in other countries

will the manufacturing migrate to the next low wage under developed countries ?

I can only assume it will.
 
#10 ·
Planeman, I think you are right. It could, as a consequence, bring back some manufacturing to the US. Labor that starts out cheap doesn t stay that way. Which is a good thing, I think. Remember how H. Ford started paying $5 a day (which pissed off the other tycoons), so his workers could buy the cars they were building?

- runswithscissors
That's nonsense. He paid $5/day because the work was grueling and repetitive and that's what it took to get them to do the job. If he paid them market dayrates they'd do something less difficult.
 
#11 ·
We will not get jobs back. The energy policy will increase costs here while Asia will continue with cheaper coal fired power plants. China has a bunch of these plants in the planning stage.

Unfortunately, between energy, labor ,taxes and policy, it will be almost impossible to be competitive.
 
#12 ·
Why would the US even want to be competitive in the consumer goods manufacturing market?

There are much better markets out there that the US dominates in. Tech, entertainment, finance, etc…

On the subject of cars… the US is ground zero in the auto revolution, the first two affordable long-range electrics are American (Bolt, Model 3). Its starting to look like getting a Model 3 will be about like getting Green Bay Packers season tickets, the waiting list is looooooong.
 
#13 ·
Jobs are gone because cheaper labor makes stockholders more money. No, they are not coming back.
And if you add huge tariffs to Chinese products, the American people will start screaming when almost everything they buy goes up in price by 25%-50%.
You can't have your cake and eat it too.
You can't have low priced goods and good paying jobs.
 
#14 · (Edited by Moderator)
The most important item is machine tools; not the home shop type, but industrial machines that make our consumer goods and our home shop tools. Nothing is hand made anymore; it is all done by machine, so if the machine is high quality, then it doesn't matter whether an item is made in China, India or anywhere in the world. You can get an unskilled Chinese or Congolese or Mexican to operate a machine, but the machine does all the work. It no longer depends on skilled labor to produce goods. That said; countries must invest in the very best machinery. In that way, "Chinese junk" would no longer be applicable. Some high quality items that come from China are the result of their investment in high quality machinery. Some poor quality items are the result of inferior materials being used and lack of quality control. You only get what you pay for. If you want quality, you have to pay for it. No one is going to give you more than what your ask (and pay) for. That is the fault of the U.S. company trying to maximize profits. A typical contract with a Chinese company might read thusly:

"Make 5 million widgids at the lowest price; use leftover scrap material if possible. Make it look good on the outside. It only has to last for a year at the most. This contract is fixed price."
 
#15 · (Edited by Moderator)
Why would the US even want to be competitive in the consumer goods manufacturing market?

There are much better markets out there that the US dominates in. Tech, entertainment, finance, etc…

On the subject of cars… the US is ground zero in the auto revolution, the first two affordable long-range electrics are American (Bolt, Model 3). Its starting to look like getting a Model 3 will be about like getting Green Bay Packers season tickets, the waiting list is looooooong.

- Waldo88
Outsourcing decisions are based on slim changes in costs, especially on commodity products.
Somthing that retails for 3 bucks… a 2 cent cost difference = closing the factory and moving to china.

It is not about HUGE gaps like American made vs Harbor Freight pricing.

I don't believe we are dominating in the other areas…Banking and Finance are moving to Asia as well.
All the tech is made there as well - like Apple with Foxxcon

AMC and Carmike Cinema is Chinese
http://www.wsj.com/articles/amc-entertainment-buy-carmike-cinemas-1457050915

China is on a buying spree here, buying hotels, food production (Smithfield Foods) etc.

Trump's tarriff would only need to be 5% or so, to shift decisions on outsourcing. Like Ford moving to Mexico, the labor savings is not going to equal 5% of the new car price crossing the border.
Same with Nabisco and others.

Talking about a small shifting of the tide, not blowing up the dam.
 
#16 ·
I do know this, Steel prices are rising due to tariffs put in place on foreign steel imports. This allows domestic steel companies to compete and become more profitable. This in turn helps keep jobs at home for those that do not have a college education. These are the people who fund the base of our economy. Without an income…...
 
#17 · (Edited by Moderator)
I do know this, Steel prices are rising due to tariffs put in place on foreign steel imports. This allows domestic steel companies to compete and become more profitable. This in turn helps keep jobs at home for those that do not have a college education. These are the people who fund the base of our economy. Without an income…...

- JKMDETAIL
No, not really. That used to be true decades ago. Remove the various parts of the service industry (which is not subject to foreign competition), construction (also not subject to foreign competition) and domestic food production (where again, foreign competition isn't a big deal), by far the bulk of what remains is college educated. Everything else is dying off; the US has a lot of resources, cheap skilled labor is not one of them.

Outsourcing decisions are based on slim changes in costs, especially on commodity products.
Somthing that retails for 3 bucks… a 2 cent cost difference = closing the factory and moving to china.

It is not about HUGE gaps like American made vs Harbor Freight pricing.

I don t believe we are dominating in the other areas…Banking and Finance are moving to Asia as well.
All the tech is made there as well - like Apple with Foxxcon

AMC and Carmike Cinema is Chinese
http://www.wsj.com/articles/amc-entertainment-buy-carmike-cinemas-1457050915

China is on a buying spree here, buying hotels, food production (Smithfield Foods) etc.

Trump s tarriff would only need to be 5% or so, to shift decisions on outsourcing. Like Ford moving to Mexico, the labor savings is not going to equal 5% of the new car price crossing the border.
Same with Nabisco and others.

Talking about a small shifting of the tide, not blowing up the dam.

- DrDirt
AMC? The theater company?

By entertainment I mean the big dogs; Time Warner, Disney, and Comcast, by far the 3 biggest entertainment companies in the world. Given that they own Youtube, Google (Alphabet) could also be considered an entertainment company.

Americas too big to fail banks aren't moving to Asia. The market cap of US stock markets blows away the rest of the world. Our currency is the worlds reserve currency. The US dominates the world of finance.

Who cares where tech things are assembled? They are designed and financed here, the companies are based here, the profits come here. The US dominates the world of tech, rare is an invention or innovation that doesn't have US fingerprints all over it.

This idea that the US is in decline and has no good jobs… it is just rooted in fantasy.
 
#18 ·
You can't have your cake and eat it too.
You can't have low priced goods and good paying jobs.

- Ger21
Not believing that the above statement is true is to be in denial. The drive to outsourcing jobs comes from 2 places; wanting to maximize corporate profits, while making your product less expensive to the consumer.

That said; countries must invest in the very best machinery. In that way, "Chinese junk" would no longer be applicable. Some high quality items that come from China are the result of their investment in high quality machinery.
And, when consumers start caring much more about the price than about the true value of the item, which includes quality and longevity, then the same two motivations results in corporations cutting corners and making/selling lower quality items. It is NOT because they don't have the proper machinery. It's because, making a better product costs more, and overall, the consumer doesn't care. They just tend to buy the cheaper product.

I'm somewhat comforted by the existence of premium brands like Festool. They'll probably never dominate the market share. But it suggests that there are enough consumers who care about quality to keep some well built products on some shelves.
 
#20 ·
Mr.Ron - "Nothing is hand made anymore; it is all done by machine".

Ain't it the truth! I love watching the Science Channel's "How its Made" program and almost everything shown is made by a well engineered and often robotic machine or series of machines. I always wonder who designed these machines and how the company who bought them ever entered the market considering the extravagant cost of the equipment.

Planeman
 
#22 ·
Relating Donald Trump, Chinese economy and machinery prices is a long shot. Its also like saying the world revolves around America and China. If rules are made so imports have to sell for a higher price in the US, it will benefit China and India goods so they can be more profitable, and sell the other 4-5 billion customers around the globe at still lower prices. This is not a political issue, its about global economy and no politician can raise wall around its geographical boundaries and hide from the rest of the world, not even Donald Trump.
 
#23 ·
Mr. Chipppendale, you are basically right. However Mr. Trump isn't looking at tariffs, he claims China artificially sets its Yuan at a few points lower than the US dollar so no matter how the dollar is valued in the international market, China's Yuan us always less. In essence, this is cheating. Mr. Trump wants to stop China's artificial valuing of the Chinese Yuan and make China's Yuan properly valued in the world market.

You can read about all of this here and at other financial websites.

http://www.cnbc.com/2016/01/07/chinese-yuan-heres-whats-happening-to-the-currency.html

Planeman
 
#24 ·
People really don't understand how a country evolves over time. All countries start out with generally a low cost of living and low wages. This condition allows them to compete in low-profit margin businesses pretty easily (like manufacturing). As the country evolves, the cost of living (and wages) goes up, and therefore they are no longer able to compete on a worldwide scale with cheaper countries. This forces them to shed low-margin businesses and move into higher profit margin fields. It's the only way to support their higher cost of living.

Traditionally low margin fields are manufacturing, steel, etc. (GM, Ford, Alcoa, type companies, they usually run 5% profit margins). Technology, finance, and health care are higher profit margin deals, oftentimes in the 15%-25% range (Google, Apple, MasterCard, JNJ, etc.)

Losing jobs to China isn't some huge negative thing, it's a natural evolution of our country. When you look at the jobs we've shed, they are mostly low margin industries that can't support our higher cost of living infrastructure.

This is no different than what has happened with much of Europe long ago. Think of what products Europe is known for - it's not low margin manufacturing, it's pharmaceuticals, luxury goods, etc.

The same will happen with China.
 
#25 · (Edited by Moderator)
^ ... and yet the old Keynesian saw is spot on: in the long run we're dead. China feeling post-industrial woe is generations away but your children and grandchildren likely need to eat today, tomorrow and every day thereafter. So time isn't your friend in the US whether you're left or right.

We could have had a softer landing with the inevitable hollowing out of our manufacturing base but a couple of clowns championed NAFTA then MFN status for China. Place like Detroit, Youngstown, Flint, Gary, Warren, Johnstown and a thousand other places where a person could earn a living and raise kids.

No, Trump cannot change the facts at the heart of centuries of economic theory, but you can bet your ass that both he and Sanders offer real alternatives to the fiddle-while-Rome-burns status quo horsecrap that both parties have fed us since 1960.
 
#26 ·
People really don t understand how a country evolves over time. All countries start out with generally a low cost of living and low wages. This condition allows them to compete in low-profit margin businesses pretty easily (like manufacturing). As the country evolves, the cost of living (and wages) goes up, and therefore they are no longer able to compete on a worldwide scale with cheaper countries. This forces them to shed low-margin businesses and move into higher profit margin fields. It s the only way to support their higher cost of living.

Traditionally low margin fields are manufacturing, steel, etc. (GM, Ford, Alcoa, type companies, they usually run 5% profit margins). Technology, finance, and health care are higher profit margin deals, oftentimes in the 15%-25% range (Google, Apple, MasterCard, JNJ, etc.)

Losing jobs to China isn t some huge negative thing, it s a natural evolution of our country. When you look at the jobs we ve shed, they are mostly low margin industries that can t support our higher cost of living infrastructure.

This is no different than what has happened with much of Europe long ago. Think of what products Europe is known for - it s not low margin manufacturing, it s pharmaceuticals, luxury goods, etc.

The same will happen with China.

- TMGStudioFurniture
Sooner than later it will happen to China. The world is flush with unexploited workforces. Business will find those workers and a government willing to pay for the infrastructure needed to exploit those workers.

Donald Trump is a clown, he is far from the savior people are making him out to be. He is a tyrant that has waited for and now sees an opening to seize the power he desires.
 
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