Monday, April 18, 2005

China and Mexican Immigration

A friend of mine made an excellent point. I was going on, as I do, about how I am sensing that many observers see that China's miracle is phony. My friend had sent me a long STRATFOR article China's Economy: Crash or Slow Decline? By Rodger Baker. in which Mr Baker avers that China is about to or is in the midst of a major econimic correction. Here is what I wrote:

A lot of folks are beating this drum, regarding the fraud that is the China miracle, and the likelihood of a crash. A crash is coming, with many reports saying it is underway now. I think we will look back 10 years from now at the wreckage of China, just as we did with the wreckage of the Warsaw Pact countries and say, why didn't we see it coming?

He came back with this observation.
If this happens, what will WalMart have to sell?

To which I responded:
Stuff made in Mexico. A big reason for the illegal immigration from Mexico is the fact that China has undercut them, amazingly, so there is absolutely no opportunity in Mexico except to come North and try to find work in the service industy. The collapse of China will result in more security along the southern border.

You never hear this from even the more thoughtful analysts of the Chinese situation. Here is a long post about the current Chinese shenanigans from Publius which is linked from Instapundit. What everyone seems to miss is that the current trends in illegal immigration from Mexico are DIRECTLY related to the criminal enterprise that is China Inc.

The analogy is similar to what happens when sweatshops run by the Mob open in a neighborhood. Soon, legitimate businesses either must match the the price of goods put out by the illegal businesses and therefor engage in illegal business practices themselves OR the legitimate businesses go broke, and the formerly, gainfully employed workers are forced into illegal activity to make a living.

When China came on the scene and began producing goods made by slave labor, the costs of these goods were below even what cheap Mexican factories could produce or even could conceivably compete with. Hence, huge orders from WalMart and other discounting retailers went to Chinese companies which had the twin deleterious effects of propping up the Chinese communists, and killing the possibility that Mexican producers could meet the needs of WalMart.

Imagine a world in which Mexico and China compete on a level, legal playing field, each leveraging their natural advantages to produce low priced goods for the American consumer. Mexican industry, producing low priced goods with cheap transportation costs, would boom, and there would be real incentive for Mexicans currently running for the border to stay home and work for decent wages. China would face a major restructuring and violent economic upheaval, but would eventually retool to produce competitive goods and sustainable (and realistic) growth rates.