Contrary to the current narrative, China has been instrumental in keeping the US economy viable for the middle class. As our economy has stagnated or collapsed for Middle America, China continues to produce goods for consumption in the US that helps to maintain our lifestyle. The narrative is that China stole our good paying manufacturing jobs. And this is true just looking at the data. Most of our retail goods today are made in China. However, this surface analysis neglects the causes of manufacturing relocation and does not examine the real impacts to our current economy for the middle class.

These two charts tell a story. The growth in family median income for the lowest three quintiles (to 60% from 1967 to 2015 is either zero or barely perceptible. In the meanwhile GDP growth per capita has been about 250%.

I don't think that this is the full story, though. Elizabeth Warren did some really good research when she was a professor at Harvard University on the plight of the middle class. She showed that the actual situation was far worse than would be indicated by the data. Basically the real costs of raising a family were way above those being published. Anecdotal evidence, that it takes two wage earners to barely keep up compared to one in the 1950s, would certainly bare this out. Basically economic rent has hit hard on the middle class, and that is part of the secret of how the 1% became so wealthy.

So back to China. Two factors figure into my conclusions. First is that consumer goods have been deflationary due to the fact that most have been off-shored. This has helped enormously in supporting the middle class life style. The second factor is that cheap consumer goods has kept the measure of inflation into single digits and less, while housing, education and food have skyrocketed. Our middle class would be without consumer goods had manufacturing remained in America.

Look at it another way. Ignore currency and balance of trade. The Chinese worker slaves away to produce cheap consumer goods for us. Nice for us, not so nice for them! We get our goods really cheap, and don't even pay them. In the early days of trade by tall ship you would go to a port with your home port goods, sell them for local currency and by foreign goods with that money. Goods for goods, and the market closes. Not any more. We are currently running a rate of $350,000,000,000 trade deficit per year with China. That means that we don't ship them goods and services for their goods, but instead ship them US dollars. I think that we have just about reached their limit as to how many dollars they want to absorb.

Now for an even more interesting analysis of manufacturing in China vs. manufacturing in the US. It just so happens that I built a small manufacturing business 15 years ago. At the same time I had a Chinese partner who was interested in starting the same business in China, actually Beijing and Chengdu. I am an engineer so I designed three products for him targeted at the Chinese markets and five products for myself targeted at the US market. We compared notes on building a manufacturing enterprise. There was little comparison. His costs and hurdles were a fraction of mine. I initially rented local industrial space, a 100 year old brick building with no insulation and walls porous to rain. I paid $7 per square foot in the US North East and he paid $1.20 per square foot for new manufacturing space in an industrial development. I paid six times as much money for supplies and materials for construction. I needed a plastic molded part and found an importer from the EU at $1.60 a piece. My Chinese partner found a friend in a plastic molding business for cell phones. He handed his friend one of the parts and his friend did the CAD drawing for a similar part, made the tooling and then manufactured 10,000 parts for him. It wasn't worth billing him for such a small quantity. He had few regulations to deal with. The State and the local governments hounded the hell out of me, it almost seemed like they were circling for a bribe. The deal in China is that large projects require "lubrication" where as small projects slide on through, at least according to my friend. Most of the small manufacturers that I know locally here in the States had taken the China move or were seriously contemplating it. In retrospect, I should have had him make all of my products. I could go on and on about comparisons, but you get the idea.

The start up environment in China for a manufacturing business is far better than in the US. So why is this? I think that it starts at the top. China is a planned economy from the top and a free market economy from the bottom. The manufacturing environment is created by the government to be efficient. Here it's designed around economic rent. Every resource that you need is overpriced, with the exception of raw industrial steel buildings, but that is only about 10% of the cost of building a new factory, which I eventually did. I don't see how manufacturing returns to the US. I think that Trump will fail miserably, except for a few token examples. I believe that reality is going to be a really hard critic of President Trump in about 12 months.

In my opinion, here's the best formula- Design products in the US, for the US market, build them in China, and import them back to the US. Develop high-tech products here, and manufacture them here initially, but with the idea of eventually moving production offshore. The problem of providing good wages to middle America is separate problem. You can't solve this problem by making consumer products artificially expensive by trade restraint.