Shanghaiing the Global Economy (with Rachel Slade)
China's maritime strategy for world domination.
SHIPWRECK—an evocative word that calls to mind Spanish galleons, sunken treasure chests, pirates, the 1715 Plate Fleet, bad weather, and Kate Winslet waist-deep in cold seawater, swinging an axe. Snapshots from long ago, in other words—tragic moments from history that happened in the distant, sepia-toned past.
But ships still go down. The ocean is just as vast and wild and almighty as it was in the early 18th century. Even in 2021, we are no match for a pissed-off Poseidon.
On September 29, 2015, the El Faro, an American-owned, American-crewed container ship, left the port at Jacksonville, Florida, bound for Puerto Rico. It never made it. The vessel steamed right into the eyewall of a tropical storm that became a hurricane. Two days after its ill-advised departure, El Faro sunk. All 33 mariners aboard perished at sea.
An American ship! An American crew! In the age of satellite navigation systems and pinpoint-precise weather forecasts! In the Atlantic, not far from Florida! How could such a tragedy have happened? This question, Rachel Slade explains on this week’s PREVAIL podcast, is what compelled her to write the sublime Into the Raging Sea: Thirty-Three Mariners, One Megastorm, and the Sinking of the El Faro. It also sent her into the rabbit hole—or whatever the deep-sea equivalent of “rabbit hole” is—of shipping.
After first meeting her and reading her book last year, I too went down that nautical rabbit hole. And it is no less fascinating than those actual deep-sea dives, where all kinds of incredible creatures turn up, 20,000 leagues under the sea.
What I have been able to see, from this new vantage point, is how vulnerable we are to China—not militarily as much as economically.
Consider: there was a time, not that long ago, when the United States was the world’s biggest player in manufacturing. Gradually, most of that industry was outsourced—first to Japan, in the mid-40s and 50s, and now to China. As Slade points out in our discussion, the moribund state of American manufacturing is such that during the early days of the pandemic, we were unable to mass-produce masks. Individual craftspeople were doing it on Etsy—out of necessity. That’s maybe not ideal. And, as she also reminds us, the pandemic revealed that most of our pharmaceuticals are manufactured in China or India. Also not ideal.
But manufacturing is only half the story.
As Slade points out, the excuse generally given for why things cannot be made here is high labor costs. “We can’t compete with cheap labor overseas,” the naysayers claim. But it’s not just the labor that makes imported Chinese goods inexpensive. It’s also the cost of shipping—which, until recently, was impossibly cheap. By nationalizing the industry, countries like China, by far the world’s largest international shipper, and South Korea, another major player, keep those costs artificially low. There’s no immutable economic law that says it has to stay that way. To the contrary, what goes down must come up.
China’s strategy for world domination is not, as I see it, a military one. Rather, Beijing is trying to conquer the world economically. The plan goes like this:
Step 1: Become world’s most important manufacturing center. Dominate the market. Compel Western companies to outsource manufacturing to China. [check]
Step 2: Become world’s most important shipper. Build enormous fleet of container ships. Establish trade routes all over he world. Dominate the logistics market. [check]
Step 3: Raise prices.
The cost of shipping has gone up three times since the beginning of the pandemic—and with it, the cost of just about everything. There is no indication that this trend will reverse. Why should it? China, as we have seen, has a near-monopoly on global shipping. They can charge whatever they want. And they will have to charge more, as their own labor costs increase. Ironic, isn’t it, that this Communist country has become a utopia (dystopia?) of pure, unfettered, brutish, Milton-Friedman-jizzing-his-pants capitalism?
“China’s true goal is to create a global dependency on their goods and services so that they can control the geopolitical conversation,” Slade told me. “You can’t easily negotiate with the one country that’s keeping everything flowing around the world. They have all the economic power—not as consumers but as the engine, as producers and movers— so they control the conversation, so they can shape the rules to their favor and crush anyone who dares to challenge them. And that’s how you secure your position as a superpower.”
Just as Russia uses our own technology to spread disinformation and sabotage our elections, so China uses our own economic system against us. Who needs battleships and destroyers and aircraft carriers when you command most of the world’s container ships?
The way to combat this very real economic threat is to Make America Make Stuff Again. Increased shipping costs offset some of the financial benefit in outsourcing our manufacturing. But there is a red line.
As long as x is less than y + z, where x is the domestic labor cost, y is the Chinese labor cost, and z is the cost of shipping, nothing will change. But we have to be prepared to shift operations stateside before an exponential increase in z.
The rebirth of American manufacturing is a popular idea across the political spectrum. Trump exploited that sincere patriotic desire when pandering to his MAGA base, while wearing a stupid red hat made in China. Biden is legitimately committed to labor and to unions, key drivers to make this a reality. Among the people, this is an easy sell. Among our oligarchical overlords, who don’t give a shit about sovereignty? Not so much. They make money, even if they sell us short.
Description: Greg Olear talks to journalist and best-selling and award-winning “Into the Raging Sea” author Rachel Slade about Scott Borgerson, the CEO of CargoMetrics and the (we think) husband of Ghislaine Maxwell; the Jones Act and why it matters; Elaine Chao’s many conflicts of interest; China’s maritime ambitions; the hoodie as great American garment; and how and why to bring U.S. manufacturing back. Plus: Trump launches his own SNL-like weekend comedy show.
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Photo credit: Keith Skipper. CSCL Globe on her maiden voyage arriving at Felixstowe.