Back in May, I argued that neither side in the internal debate over the future of labor had the answers for key questions, chief among them: what to do about China? We need a strategy that, on the one hand, recognizes that we’re dealing with an authoritarian regime that still waves the banner of communism but is the global engine for capitalism. On the other hand, how do you come up with a strategy that doesn’t just feed an anti-Asian campaign?

Anyway, the July 30th issue of the Economist has a special report “China and the world economy,” which I highly recommend (you need a subscription but it’s probably in the local library). I know this makes eyes glaze over but this is a lot more important than the rhetoric we just heard around the AFL-CIO convention. I just want to give you some distilled bullet points:

• We all get focused on China’s impact on exports and its trade surplus (which obviously are important). But, check this out: China is shaping the developed world’s “inflation rates, interest rates, wages, profits, oil prices and even housing prices.
• The world’s workforce has doubled with the entry of China, India and the former Soviet Union–with China accounting for half that increase. We’re talking a huge number of new workers–that in turn changes the price of labor…downward.
• China’s vast army of workers “has reduced the bargaining power of workers in developing economies.” It’s not so much the real outsourcing (which, relatively speaking, is not huge), it’s the threat of oursourcing, and obviously the decline in unions here, which leaves workers without much power. As a result, “In most developed countries, wages as a proportion of total national income are currently close to their lowest level for decades.” We all know that because we see that wages are going no where.
• You wanna know why you are paying more at the gas pump? China. One-third of the increase in oil demand is coming from China–and it’s just the beginning. China is starving for oil and other raw materials to feed its rapidly expanding economy. Its need for these raw materials means prices go up. And that won’t stop. Here’s a mind blowing statistic: “There is currently one car for every 70 people in China, against one car for every two Americans.” That will change quickly, driving the thirst for oil.
• Are you one of those “lucky” home owners who is sitting on a million-dollar asset, which has doubled in value in the past five years? Yup–China did that for you. To grossly simplify the issue, China’s purchase of U.S. bonds has kept down interest rates AND because it supplies cheap goods, China has also kept down inflation–even though there is a lot of money sloshing around the world. Take that together, and, presto, you’ve got people buying and selling homes because money is cheaper than it might be. Oh, and, the “People’s Bank of China has also supported America’s mortgage market by buying vast amounts of mortagage-backed securities.”
• Some of you probably have been reading a lot about Chinese currency and the decision to end the yuan’s direct link to the dollar. Without getting into the ins and outs of currency speculation, here’s the key thing to know: China might start dumping its dollars and decrease its purchases of U.S. Treasury bonds. That might mean a fall in the dollar. Which would mean investors are going to want a higher return on their money–which means interest rates will go up. Presto! The housing market collapses. So, Chinese central bankers will have a lot more to say about your assets–and your ass–than Alan Greenspan…hmmm…maybe that’s not such a bad thing, huh?

Anyway, that’s just the upshot of a very interesting piece. But, again, the point is not to China-bash. The point is to be real about what is happening in the global economy. And to underscore that without an answer to this challenge, the squeeze on workers everywhere will only increase.