China’s “Cheap” Labor is Not The Reason You Don’t Have a Job

As China Invested At Home, America Burned Trillions

Interior of China’s Daxing Airport

How many times have you heard that China’s “cheap” labor is the reason that so many products are made there? This argument goes like this, American companies outsource jobs to China to take advantage of cheap labor and provide low cost goods for American customers….at the expense of American jobs. The “cheap labor” statement is one of those phrases that people say and often gets repeated in the media, but few people dare challenge whether or not it is true. The fact is, the cheap labor narrative is misleading, and I will explain why. Now, given that Republicans and Democrats have successfully mismanaged the United States to the brink of economic depression (again), I fully anticipate that China will be their go-to scapegoat this election. But before they do, let’s get some things straight.

First, a little critical thinking is required. While its true that China’s labor is cheaper than the US, it is not cheap compared to many countries. In 2016, China’s typical labor cost was $4.99/hour, while two of its primary competitors Mexico and Vietnam, were $3.82/hour and $2.38/hour respectively. China’s wages are higher than many of its peers, and Chinese labor has only become more expensive since that time. In fact, there are many other countries with lower labor costs than China, but they do not attract multinational businesses in the same way that China does. Therefore, it is overly simplistic to say that companies outsource to China because of “cheap” labor, clearly other factors are at play.

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So if “cheap” labor isn’t the reason that China is the world’s factory, what is? Investment into infrastructure and education. China’s government has invested trillions of dollars into its education system and infrastructure over the past 40 years. It isn’t cheap labor that keeps companies in China, it is an educated workforce backed by the worlds best ports, airports, roads, and railways that make the movement of parts, people, and supplies within (and to/from) China easy.

Let’s look at some examples. In 1985, China did not have a single kilometre of expressway in the entire country. Just 30 years later, China had an expressway system of 112,000 km in length, a more extensive network of roads than the USA, previously the world leader. Furthermore, while the US doesn’t have a single foot of true high speed rail, China began operating its first lines back in 2007. Today, China’s railways are not only the words fastest, operating at 350+kph, China now maintains 35,000 km of high speed rail. That is more high speed rail than all other countries on Earth combined. China’s gleaming airports, meanwhile, make American ones look third world…and China is building 216 more by 2035.

Photos illustrate some of the differences between the two countries:

Compare a typical American train (top) to a Chinese high speed one (bottom).

China’s government has made scientific innovation a priority, providing government grants to startups, cheap office space, setting up tax-advantaged innovation hubs, and providing hundreds of billions of dollars for research and development in crucial areas like Artificial Intelligence, Robotics, Clean Energy, and Aerospace. The United States government, however, has become increasingly hostile to science in the last few decades.

Compare these photos of O’hare airport and the new Beijing Daxing Airport (bottom). It is clear that USA’s infrastructure is stuck in the 20th century, while China built for the 21st.

The “cheap” Chinese labor narrative needs to end. The simplistic assertion that China’s “cheap” labor “took” your job is shamefully misleading. The “cheap labor” statement is an arrogant disregard of our own inability to invest in our own country and constitutes a willful failure to confront and acknowledge our own failings here at home.

Sure, there are other factors at play. While cheap labor alone does not explain why China is the world’s factory, neither does China’s investment into infrastructure and education. There are many variables that led us to where we are now. But the “cheap labor” statement distracts us by placing the blame solely on external forces that we cannot control, while ignoring those internal forces that we can control at home. Because while we cannot necessarily compete with cheap labor, we could have still remained competitive overall.

The financing needed to modernize American infrastructure and invest at home was within reach, but was spent elsewhere. It is worth remembering, China has not fought a single war since 1979, while America has fought several, with some that have no end in sight. Trillions of dollars were burnt in Middle East warfare that could have been used to keep American companies, its people, and its infrastructure competitive.

So this election year, when Democrats and Republicans come together to blame China for your lost job, remember that the truth is never simple, and some of the blame belongs here at home.