Democrats Argue President Obama is Responsible for Improvement in Michigan Economy; Republicans Say It is Their Republican Control of the State

Maybe It’s the Chinese!

Thanks in large part to the support of the auto industry by the Obama Administration, Michigan’s economy has stopped its free fall.  The auto industry is employing people again, and the state is running a small budget surplus.  Republicans are saying all of this is in spite of the administration’s policies and besides last year the state put a Republican in the Governor’s office and Republicans in control of the legislature.

It turns out that at least with respect to one Michigan County it is the Chinese who have brought prosperity, or at least a slowdown in the slowing down.  In Saginaw, Michigan this is what happened.

In 2010, Pacific Century Motors, controlled by Aviation Industry Corp. of China and Beijing E-town International Investment Co., an investment arm of the city of Beijing, bought the money-losing auto-parts maker from its corporate parent, General Motors Co., for about $450 million. With that, this city went from being an exhibit of America's industrial decline to a case study in the impact of Chinese investment money on U.S. communities.

And subsequently this is what has happened.

Today, few people in town are wringing their hands about the Chinese. Inside a 59-year-old factory at Nexteer's sprawling complex, contractors are ripping out antiquated machine lines and installing new equipment to produce an electronic steering system for the next generation of GM's large pickup trucks and SUVs. The company, for years known as Saginaw Steering Gear, has hired more than 100 engineers in Saginaw last year and is looking for 80 more this year.

And there are several lessons in all of this.  One is that the international economy is complex, and that benefits do not always flow in one direction.  Yes Chinese manufacturing is taking jobs from Americans, but some Chinese investment, like the Japanese and Koreans before them is taking place in America and generating good paying American jobs.

A second lesson is that this is what happens when a country runs a trade deficit.  Initially the creditor countries lend the money back to the debtor nation, as China has famously done.  But eventually the creditor nation will start to buy the assets of the debtor nation; in essence the debtor nation is selling off its assets to finance its continuing deficit.

The third thing is that all of this is going to continue.  China is and will be a major investor in the U. S. and it will take control of property and businesses in the U. S. as long as the U. S. is running a balance of payments deficit with China. 

Nevertheless, many politicians in the industrial Midwest are focusing on the potential upside of direct Chinese investment. In Michigan, which has lost tens of thousands of jobs as auto makers and parts suppliers shrank or moved operations to lower-wage countries, Gov. Rick Snyder and other officials are courting Chinese investment. So are Governors Scott Walker of Wisconsin and Jay Nixon of Missouri. Ohio Gov. John Kasich has said his state will help train workers for Chinese employers if they invest in a pharmaceutical operation in Toledo.

Mr. Romney in particular has made China bashing front and center in the Presidential race.  One wonders if the Republican Governors taking credit for improving economic conditions in their states, improvement that in part of coming from Chinese investment know about this.

Oh yes, remember all that anti-union sentiment, all that rhetoric about how unions are costing jobs and companies want a non union work force and how they cannot compete if they have a unionized work force.

Mr. Rapson and other UAW leaders threw their weight behind the Chinese bid.

"We found the labor union to have a very long-term view," says Mr. Zhao. "If you don't work together to make a company more competitive, the company won't have any future at all."