Why America Should Applaud -- Not Condemn -- China's Growth
Aug 31st 2012 2:05PM
Updated Aug 31st 2012 3:42PM
In recent years, political and economic pundits across the United States have spouted doom-and-gloom prophecies regarding Chinese growth as if it were some sort of GDP Godzilla. For all the proud patriotism, however, these same talking heads miss a critical point in the Chinese-American relationship. Americans -- and especially growth-minded investors -- will benefit far more from a wealthy China than they will from a beaten-down one.
It's time to get serious about China's place in the world economy, and why Americans should welcome it with open arms.
The outdated notion that China and the U.S. compete in a zero-sum game of economics needs to go. As China's GDP grew in the 9% range during this century's first decade, the U.S. reaped significant rewards. American exports to the Asian nation rose more than 500% -- 500%! -- between 2000 and 2011. Exports to the rest of the world grew only 80% during that same time frame.
This year, the U.S. is on pace to export more than $100 billion worth of goods to China, making it America's third-largest export partner and largest outside of North America. As China's middle class grows, demand for American goods and services will only increase, generating greater profits for U.S. companies and stirring the sleepy American economy.
Even the all-important employment figure should rise on the backs of greater exports, which will require expansions of corporate payrolls to fulfill burgeoning demand. With a sunnier economic outlook, large companies won't be so hesitant to take on a little risk and invest their mounting piles of cash reserves. In 2010 alone, $70 billion in U.S. exports to China created 437,000 jobs. More jobs leads to more consumer spending in a virtuous economic cycle -- no stimulus needed.
"Not so fast," pundits cry. "What about China's swarm of cheap exports to the American market?"
True, China is the U.S.' largest import partner, on pace to pump nearly $400 billion worth of imports into the American economy in 2012. While $400 billion represents pretty severe capital flight, consider the effect of these cheaper goods on the consumer market. With Chinese goods estimated to be priced at a significant discount for the American consumer, that opportunity allows individuals to either allocate more of their income to other purchases, or -- gasp -- save more money. We can all get behind a plan that offers more discretionary money for the pocketbook.
An investor's windfall in the East
Investors have a clear stake in China's rise, too. While Chinese economic slowdown or upheaval may make sniping politicians cheer with joy, the markets will react with tremors and quakes.
Consider the aforementioned consumer goods. Cheap overseas production and pro-globalism policies of free trade help reduce the costs that companies shoulder. That lets them pass all that extra wealth down to their shareholders, which in turn grows your portfolio.
Another examples is evident in overseas factories for electronics manufacturers such as Apple (NAS: AAPL) and Hewlett-Packard. While these companies won't win awards for workplace safety in their Chinese factories, they do get a massive cost advantage from producing products overseas. Estimates average that Apple's 4G iPhone makes a gross margin of 72% per product, whereas producing the same phone in America would hammer that impressive margin down to just over 46%.
That's a colossal advantage for Apple, and it's sent Pacific-Ocean-sized profits to shareholders during the tech company's ascent to the largest corporation of all time. Without labor from China, investors never would have experienced that same financial windfall that arose with Apple's climb. Shutting down the globalist policies that promote international trade would suck that financial life out of the markets and everyday investors.
Chinese domestic growth helps corporations and their shareholders just as much. Take China's industrials sector: American powerhouses Caterpillar (NYS: CAT) and General Electric (NYS: GE) have stepped up efforts in the Asian nation, investing heavily in coal mining thanks to the nation's swelling energy demands. Automakers Ford (NYS: F) and General Motors (NYS: GM) have similarly deployed huge resources to increase their presence in China, compensating for losses in Europe and giving hope to their shareholders.
Tomorrow's cooperative economy
These examples just scratch the surface of China's many positive effects on the American economy and investors. Americans should eagerly await further Chinese economic growth that will fuel their financial dreams, not cry foul in a shortsighted battle of GDPs that only hurts everyone's growth.
Certainly, friction will arise between the United States and China. Political battles will be waged; populist phrases decrying China's growth will be slung. Investors need to know that China's growth isn't to be feared, however. Indeed, without it, Americans would face a drastically different future without many of the amazing opportunities they face today. The U.S. should cheer on China's rise and work to grow hand-in-hand, not condemn it out of petty partisanship. It's time to look forward to a globalist future.
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The article Why America Should Applaud -- Not Condemn -- China's Growth originally appeared on Fool.com.Fool contributor Dan Carroll holds no positions in the stocks mentioned in this article. Motley Fool newsletter services have recommended buying shares of Ford Motor and Apple, as well as creating a synthetic long position in Ford Motor and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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