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From 400 Million Consumers To 800 Million Workers

by Greg Rosalsky

In 1937, Carl Crow wrote a book that offered Corporate America a glimpse of a new money-making frontier. Born in Missouri, Crow had moved to China in 1911, working first as a journalist covering the country’s nationalist revolution. After the founding of the (pre-communist) Republic of China, Crow settled down in Shanghai and pivoted to a much more lucrative career: advertising.

Crow founded and ran what was then the most successful advertising company in Shanghai. In newspapers, magazines, and a sprawling empire of over 15,000 billboards, Crow marketed Colgate toothpaste, Buicks, Kodak cameras, and other American-made products to a growing population of Chinese consumers.

Having amassed a small fortune in China, Crow, in 1937, published a widely popular book that touted the economic potential of his adopted home: Four Hundred Million Customers: The Experiences — Some Happy, Some Sad — of an American in China and What They Taught Him. The book became a runaway bestseller. It won a National Book Award. And, for many American businesspeople, it offered an inside look at a gigantic emerging market to sell their products.

But almost as soon as Crow published his popular take on the future of trade between America and China, that vision went up in smoke. The same year Crow published his book, Imperial Japan invaded Manchuria, precipitating years of fighting and chaos in China that culminated with the Chinese Communist Revolution of 1949. With the Cold War and a hot war in Korea, America placed a strict trade embargo on China in 1950. Goodbye, 400 million customers.

In the 1970s, however, something remarkable happened. Not only did America and China overcome their thorny political differences and resume friendly-ish diplomatic relations, they also began a trade relationship that ushered in one of the most dramatic and swift economic transformations in world history.

However, the trade relationship that emerged was not quite the one that Crow had imagined back in the 1930s. Sure, American businesses would sell products there. But, for Corporate America, China’s larger draw became its millions of workers willing to work for low wages.

In a new book, Made in China, historian Elizabeth O’Brien Ingleson explains how Corporate America began reconceptualizing trade with China in the 1970s, the factors that led to this change, and how “what had once been a fantasy of 400 million customers slowly started to become one of 800 million workers instead.”

China Photos/Getty Images

A New Trade Relationship

When the Nixon Administration began the process of normalizing relations with Communist China, economics was an afterthought. “Throughout the decade, American policymakers saw the immediate political benefits of trade as more important than the economic benefits, the value of which was negligible,” Ingelson writes. “Most policymakers were focused on the geopolitics of the bilateral relationship.” The Nixon Administration wanted to drive a greater wedge between the Soviet Union and China and potentially get help from China to end the Vietnam War, amongst other political motivations.

At the time, China was still extremely poor and underdeveloped. When President Nixon lifted the 21-year-old trade embargo against China in 1971, not a whole lot happened economically speaking, at least at first. By the end of the first year of the reopened relationship, total trade between both countries was valued at less than $5 million.

Despite the country’s poverty, as Ingelson documents, much of Corporate America was still wedded to the economic vision, outlined by Crow earlier, in which China was a place to sell products, not make them. The main U.S.-China trade organization established by the Nixon Administration in 1971, the National Council for U.S.-China Trade, was overwhelmingly made up of industrial manufacturing corporations focused on exporting their products, like airplanes and industrial machines, to the reopened nation.

So it makes sense that, as Ingelson writes, historians have neglected to look much at the metamorphosis that was happening in China during the 1970s, and why it was important for how the relationship evolved. It was a transformation that would make the nation ground zero for the outsourcing of manufacturing. Most histories of China’s transformation focus on the period after December 1978, when Deng Xiaoping announced China’s “reform and opening,” which kicked China’s capitalist economic development into high gear.

But behind the relatively tiny U.S.-China trade numbers of the 1970s, Ingelson finds the story of a group of American entrepreneurs and Chinese policymakers who laid the foundations for the dramatic change that was about to come. A transformation that would culminate with companies like Nike, Apple, and Walmart relying on Chinese workers to manufacture their products — and in the process, lifting millions Chinese people out of poverty, killing millions of American jobs, and launching China’s economy into the stratosphere.

High-Fashion

The Industrial Revolution in England began with textiles. Ditto, in the United States and most other newly industrializing countries. Making clothes and other fabrics doesn’t require expensive machinery, and manufacturing them is labor-intensive, which is why they’re often one of the first industries that flourish in developing nations with cheap labor. China was no different.

But, interestingly enough, the Chinese textiles that first flooded the United States after Nixon lifted the embargo in 1971 were not cheaply made t-shirts, sweatpants, and other apparel you might find in the aisles of stores like Walmart today (although that was soon to come). Ingelson finds that the first items that importers brought to the United States were luxury clothing items, which celebrated the fact that they were made in China. Think embroidered silks and coats in the style worn by Chairman Mao Zedong, which were apparently all the rage with the countercultural movement back then.

One of the first American entrepreneurs to capitalize on this nascent demand for luxury fashion imports from China was a woman named Veronica Yhap. Born in Shanghai, Yhap’s family fled to Hong Kong after the communist revolution in 1949. After graduating from high school, she moved to the United States for college. Yhap had a closet filled with traditional Chinese clothes, and when she wore them, she would often get compliments, which became an inspiration for a business idea. When Nixon opened up trade with China, she spotted an opportunity, founding a company she named Dragon Lady Traders.

In 1971, after the embargo fell, Yhap was one of only three American businesspeople who made the long journey to China for the Canton Trade Fair, a biannual event that was central to how China traded with foreign nations in those years. There she purchased clothing and canvas bags that had Chinese characters on them. When she got back, she sold them to department stores, including Bloomingdales. Her business proved to be incredibly popular — and profitable. By the mid-1970s, her company was trading millions of dollars worth of imported Chinese clothing and apparel each quarter.

Yhap wasn’t alone. In fact, in Ingelson’s view, the marketing, distribution, and cultural impact of Chinese clothing by traders like Yhap was such an important part of the early U.S.-China trade story that she calls the sartorial exchange “fashion diplomacy.”

“Fashion diplomacy celebrated Chinese luxury through department store exhibits and highbrow cocktail parties, and it paved the way for increased American consumer interest in, and acceptance of, Chinese imports of all kinds,” Ingelson writes. “As the U.S. fashion world adopted China, the excitement for Chinese imports it generated helped create a cultural shift in the U.S. view of China, from Red China to trade partner.”

As America came to embrace China as a trading partner, more and more American companies saw dollar signs in the nation’s hundreds of millions of workers willing to work for cheap. By the mid-to-late 1970s, American companies began importing cheaper clothing products from China in quantities large enough to anger U.S. textile workers. In 1977, American glove makers filed the first case calling for protection against imports from China. They argued that gloves made there were cheaper because of “slave labor” conditions, and that the flood of Chinese imports was unfairly hurting American workers. The United States International Trade Commission ultimately ruled against placing any trade restrictions against Chinese-made gloves. It was like the floodgates for manufacturing using cheap Chinese labor had opened.

By 1980, companies like Nike were outsourcing production of their products to mainland China. And, in Ingelson’s words, what had been the Corporate vision of 400 million consumers had turned to 800 million workers instead.

The rise of “Made in China” was fueled by more than just China’s offering of millions of laborers willing to work for cheap. The technological innovation of containerized shipping, which began gathering steam in the late 1950s, enabled companies to ship vast quantities of goods cheaply across the oceans and improved the economics of outsourcing. So did, of course, political decisions of Chinese leaders to embrace foreign markets and export-led development, and American political leaders who decided to lower tariffs on Chinese goods and allowed companies to move their operations overseas.

But the story Ingelson paints reminds us that the ubiquity of “Made in China” labels and stickers on American products was not inevitable. China was not the first destination for American outsourcing. But, because of its gigantic size — and its hundreds of millions of workers willing to work for meager wages — outsourcing there would have massive effects on the American economy.

Sure, plenty of Chinese consumers buy American stuff, as originally imagined by Carl Crow. But the U.S. trade deficit with China now averages well over $300 billion per year. China has long moved on from the simple manufacturing of textiles, and is now manufacturing all kinds of complex products — everything from automobiles to machinery to electronics — and much of it is sold to Americans. Despite Carl Crow’s vision in the 1930s, it turned out Corporate America’s path to big profits in China wasn’t so much finding hundreds of millions of consumers to buy their stuff, it was finding hundreds of millions of workers to make their stuff more cheaply.

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Planet Money - How We Got To ‘Made In China’

From 400 Million Consumers To 800 Million Workers

A New Trade Relationship

High-Fashion

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