George Adams’ recycling business ships millions of tons of scrap metal from Southern California to China every month.
His copper, steel and aluminum returns in the form of wiring, picture frames and other consumer goods produced by that nation’s cheaper labor force.
Dependent on the very relationship with Asia that many Americans have soured on, his family-run, billion-dollar SA Recycling embodies just how interdependent the Golden State has become on Pacific Rim trade. Based in Orange, the company employs 1,350 workers at 60 locations. And the bulk of its work is exported.
“We wouldn’t survive without it,” Adams said. “There’s not enough of a market in the United States to recycle (our products).”
California now supplies the overseas factories that once stood in its own backyard. That fact doesn’t play well on the political stage these days.
With wages stagnant and working America anxious over its economic future, presidential candidates Hillary Clinton and Donald Trump promise to revive the manufacturing hubs Adams has watched decline over the past four decades.
Both have set their sights on China, where the West carries an enormous trade imbalance.
Could we really tamp down foreign trade? California commerce shudders at the thought.
The state is:
• The world’s sixth largest economy, exporting $165 billion worth of goods overseas last year.
• Particularly reliant on Pacific Rim relationships. Among U.S. states, California is the largest exporter to Asia, sending $71 billion in goods there.
• Populated by trade-fueled jobs. There are about 600 businesses in Southern California steeped in Pacific Rim trade. Those firms account for 6,450 jobs, with salaries averaging about $71,000.
• Bonded in a symbiotic relationship that would be very difficult to pull away from. Many of the raw goods and components that ship out of the Golden State get turned by Asian companies into popular products shipped right back here as parts of new products.
Swiftly prospering China made cheap imported goods a way of life in America in recent decades and, some believe, displaced the U.S. manufacturing base in the process.
Americans’ rhetoric gets more fiery as the election draws closer.
Republican Trump says he isn’t “playing games anymore” and vows to slap steep tariffs on the U.S.’s top trading partner.
And when it comes to trade, Clinton — once regarded as a friend to a free global economy — doesn’t stray far from her foe. The Democrat promises to crack down on unfair trading practices and market manipulation. And she reversed course and broke with President Barack Obama on the 12-country Trans Pacific Partnership. Obama is giving the deal a final push in his last G-20 meeting as commander-in-chief over the weekend.
For Adams, who says it costs less to ship to China from his facility near the Port of Los Angeles than to the East Coast, any reversal in our trade policy could be perilous.
That is the story of California, trade experts say. And a shift in trade policies, which appears possible no matter who wins in November, could be more than jolting.
“I don’t think there is a way to put the genie back in the bottle,” said Stephen Cheung, president of the World Trade Center Los Angeles. “The global economy has changed too much.”
INTERDEPENDENCE
Home to Hollywood, Disney, Silicon Valley and two of the nation’s busiest seaports, California is famed for exporting more show business each year to fill the booming demand for diversions fueled by the emergence of streaming entertainment and increasingly open foreign markets.
But California, the country’s most vital gateway to the Pacific Rim, makes more than movie stars. Despite losing tens of thousands of blue-collar workers over the past four decades, the state has become the nation’s manufacturing center. The Los Angeles region eclipses the rust belt cities of Chicago and Detroit when it comes to churning out computer equipment, machinery and more.
And although The U.S. imports much more than it exports, China voraciously consumes American-produced goods. And they trek to Asia via California.
In 1980, the U.S. and China traded $4.8 billion worth of goods. By last year, trade between the countries climbed to $598.1 billion, with American consumers the biggest drivers. Still, the Chinese spend more each year. The country is a leading market for almonds and other specialty foods. And last year, the Chinese bought $845 million worth of California-produced chips for computers.
Ever wonder what happens to the mountains of old washing machines and refrigerators that Americans throw out? Lots land in China.
Last year, California shipped out $1.6 billion worth of our thrown-out goods and the Chinese snapped them up. Adams ships out at least 30 to 40 million pounds a months of aluminum, copper and brass to Chinese markets, tearing up water heaters, stoves and dishwashers past their prime.
“Southern California is based on trade,” Adams said. “We have the largest ports in the country. The ports would have no reason to exist without it.”
And neither would his business, he added.
CHINA’S RISE – AND NAFTA’S
Rock-bottom labor costs and massive investment in infrastructure fueled China’s astonishing growth, at one point hitting double digits year to year.
The fuse that lit the explosive growth? The decision to temper China’s brand of socialism with free-market ambition in the days following Deng Xiaoping’s rise to power more than 30 years ago.
Since then, many influential economists have touted the benefits of free trade, arguing that limiting markets depresses prosperity.
But China’s intensifying manufacturing dominance, combined with a controversial flurry of free-trade pacts, now has many worried.
Economists such as Robert E. Scott of the Economic Policy Institute have taken a fresh look at the past 20 years of trade, including China’s entrance into the World Trade Agreement in 2001 and the North American Free Trade Agreement, which in 1994 opened up markets just as computer-directed automation began to take hold for manufacturers.
Scott, director of trade and manufacturing policy research for the Institute, estimates the U.S. trade deficit with China has drained 3.2 million jobs from the economy. And NAFTA resulted in a loss of 850,000 more workers, he said.
“There is a growing sense of exhaustion with weak job creation,” Scott said. “The most more significant impact of globalization is through the increased trade with low-wage countries.”
Scott contends the imbalance has stripped the U.S. of its middle class, while it benefits large companies that can more easily move production to cheaper offshore locales.
Ilse Metchek has seen firsthand the hollowing out of California’s partnered textile and apparel industries, where employment has nosedived in the past three decades. Metchek, president of the California Fashion Association, links it directly to the unleashing of NAFTA.
“Ross Perot was running for president at the time, and he was talking about the giant sucking sound from Mexico. He was right,” she said. “Our treaties allowed us to ship merchandise offshore and they come back duty-free. That was in one fell swoop.”
From there, shops moved to Asia, wooed by a new, promising infrastructure. Soon, retail apparel giants such as Forever 21, created in California, depended on foreign workers sewing quick knock-off fashions from Los Angeles to Europe.
“The problem is that you are trying to fix a 2016 issue with 1995 sensibilities,” Metchek said. “Our mentality has been that everyone is going to be in the service industry or the tech sector. There needs to be awareness and a positive feeling for those that work with their hands.”
Not everyone agrees. Jack Hou, a professor of economics at Cal State Long Beach specializing in trade labor, doesn’t believe jobs moved overseas. They simply changed with the technology and labor markets.
“Before we had word processing, we had typists,” Hou said. “Now, you don’t see typists. But does that mean they were out of jobs? No, they are now in different positions and different industries.”
FLOW ISN’T ALL OUTWARD
Sam Driggers, director of global initiatives at the CalAsian Chamber of Commerce, said what’s often lost in conversation about trade with China is just how much money is reinvested back into the California economy.
Some of that goes to laborers, such as those building a flurry of skyscrapers in downtown Los Angeles funded by Chinese investors watching their own country’s growth slow.
California has become a top investment for the Chinese. Since 2000, investors have sunk $16.2 billion into the state, according to The Rhodium Group, which monitors the investments.
“International trade is not a one-way street,” Driggers said. “There is a disconnect between rhetoric and reality. The movement of goods and services and people — it’s not slowing down. It’s actually speeding up.”
One example is a growing demand for California’s top export — movies.
The audience: China’s newly minted middle class.
About 100 new theaters are built each week in China, said Jean Prewitt, CEO and president of the Independent Film & Television Alliance, with even more growth anticipated. Independent producers and filmmakers have a potential gold mine for financing, she said.
But, again, the market doesn’t swing in just one direction. As audiences in China grow, so does the appetite for more movies funded by Chinese producers, helmed by Chinese auteurs and starring Chinese performers.
“On one hand, it will be the largest marketplace for potential attendees and box-office revenue,” Prewitt said. “On the other hand, (the Chinese government) has retained control and restrictions on the marketplace.”
And, despite China’s promise to open up distribution of U.S. films, the government has kept firm control on releases, stifling the market.
“It is essentially a marketplace run by an underdeveloped cinema economy” despite being funded by, Prewitt said, “one of the most highly developed economies in the world.”
Such complexities continue to shape the relationship between California and China.
“International competition produces results,” Driggers said, “and sometimes not good ones. But sometimes through that competition we tend to stretch, innovate and become entrepreneurial people. Economies do the same thing.”
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