Michael Scott frantically paced around repeating, “China. China. China”, after discovering most of the supplies in the office were shipped from China. Armed with only a small amount of information, the eccentric Dunder Mifflin manager proclaimed China must be stopped. “Everything here was made in China, Pam,” he explains, “They used to make stuff in America, Andy, but we’re falling behind.” That type of rhetoric felt harmless when the episode aired 7 years ago, but in today’s politically charged climate, little things often strike a nerve.
Especially when it comes to China. The second largest nation sits in the crosshairs of the United States, as the President unilaterally slaps tariffs on billions of dollars of imports. So while Michael spoke in jest, his comments have a profound impact today. Let’s see what Michael got right and wrong about relations with China.
The Trade War No One Wanted
President Trump has steadily shaken the foundation of global trade since taking office. As of March, he had threatened or imposed tariffs on a series of fronts including China, Canada, and the European Union. Many nations yielded to his demands to avoid further conflict, but China was not one of them. This put the two leading economies on a collision course.
At the heart of the trade war is a misguided assumption that the US did not act aggressively in the past when China stole manufacturing jobs or intellectual property. Michael echoes a similar concern in a battle of wits with Oscar, “Manufacturing in China has risen by 17% and in the US, it has only risen by 8%.” Sure, China did overtake the US in 2011 as a manufacturing powerhouse, but the change in leadership never came at the cost of productivity. What happened is US manufacturing became more efficient than the rest of the economy. Prices of manufactured goods marched higher at the same pace as everything else, so manufacturing’s share of GDP started to drop.
The same thing is happening in China. The second largest economy prepares to enter the late stages of industrialization where rising costs of labor force firms to shift labor-intensive production to cheaper regions. So when Oscar responds, “Do you know the comparative expansion of, say, the information sector? I’d say that’s far more relevant,” he raises a valid argument.
The other problem is China receives preferential treatment as a developing nation in the World Trade Organization. That enables China to take on fewer commitments and claim special privileges intended for low-income countries. Unlike the rest of the world, though, China owns the second largest economy, with booming manufacturing and tech sectors, among more. Yet, their status never changed. China continues to enjoy the same benefits as it did 15 years ago.
What Happens Next?
The short answer, no one knows. The two sides will likely joust for position with tit-for-tat tariffs until one side bends. But supposing China wants to throw a haymaker, then the US debt might be the knockout punch. This touches on Michael’s other concern, “China has been loaning us billions upon billions of dollars. We are going to be owing them for the rest of our lives, they will control us.” One day, China might dump its $1.2 trillion in US debt holdings, but the result would devastate the global economy. The fear alone is enough to hammer the US dollar and key macroeconomic indicators. That soon bleeds into other markets and could cost China billions, or even trillions, in lost exports. China would need to be pushed to the brink to even consider shedding US debt.
Of course, the ongoing trade war consists of many more factors. We only mentioned a few factors that linked the current climate and Michael’s comments. It offers a basic foundation for why Americans fear China and where it might be misguided.