Why America Should Applaud -- Not Condemn -- China's Growth

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

In recent years, political and economic pundits across the United States have spouted doom-and-gloom prophecies regarding Chinese growth as if it were some sort of GDP Godzilla. For all the proud patriotism, however, these same talking heads miss a critical point in the Chinese-American relationship. Americans -- and especially growth-minded investors -- will benefit far more from a wealthy China than they will from a beaten-down one.

It's time to get serious about China's place in the world economy, and why Americans should welcome it with open arms.

Trading spaces
The outdated notion that China and the U.S. compete in a zero-sum game of economics needs to go. As China's GDP grew in the 9% range during this century's first decade, the U.S. reaped significant rewards. American exports to the Asian nation rose more than 500% -- 500%! -- between 2000 and 2011. Exports to the rest of the world grew only 80% during that same time frame.

This year, the U.S. is on pace to export more than $100 billion worth of goods to China, making it America's third-largest export partner and largest outside of North America. As China's middle class grows, demand for American goods and services will only increase, generating greater profits for U.S. companies and stirring the sleepy American economy.

Even the all-important employment figure should rise on the backs of greater exports, which will require expansions of corporate payrolls to fulfill burgeoning demand. With a sunnier economic outlook, large companies won't be so hesitant to take on a little risk and invest their mounting piles of cash reserves. In 2010 alone, $70 billion in U.S. exports to China created 437,000 jobs. More jobs leads to more consumer spending in a virtuous economic cycle -- no stimulus needed.

"Not so fast," pundits cry. "What about China's swarm of cheap exports to the American market?"

True, China is the U.S.' largest import partner, on pace to pump nearly $400 billion worth of imports into the American economy in 2012. While $400 billion represents pretty severe capital flight, consider the effect of these cheaper goods on the consumer market. With Chinese goods estimated to be priced at a significant discount for the American consumer, that opportunity allows individuals to either allocate more of their income to other purchases, or -- gasp -- save more money. We can all get behind a plan that offers more discretionary money for the pocketbook.

An investor's windfall in the East
Investors have a clear stake in China's rise, too. While Chinese economic slowdown or upheaval may make sniping politicians cheer with joy, the markets will react with tremors and quakes.

Consider the aforementioned consumer goods. Cheap overseas production and pro-globalism policies of free trade help reduce the costs that companies shoulder. That lets them pass all that extra wealth down to their shareholders, which in turn grows your portfolio.

Another examples is evident in overseas factories for electronics manufacturers such as Apple (Nasdaq: AAPL  ) and Hewlett-Packard. While these companies won't win awards for workplace safety in their Chinese factories, they do get a massive cost advantage from producing products overseas. Estimates average that Apple's 4G iPhone makes a gross margin of 72% per product, whereas producing the same phone in America would hammer that impressive margin down to just over 46%.

That's a colossal advantage for Apple, and it's sent Pacific-Ocean-sized profits to shareholders during the tech company's ascent to the largest corporation of all time. Without labor from China, investors never would have experienced that same financial windfall that arose with Apple's climb. Shutting down the globalist policies that promote international trade would suck that financial life out of the markets and everyday investors.

Chinese domestic growth helps corporations and their shareholders just as much. Take China's industrials sector: American powerhouses Caterpillar (NYSE: CAT  ) and General Electric (NYSE: GE  ) have stepped up efforts in the Asian nation, investing heavily in coal mining thanks to the nation's swelling energy demands. Automakers Ford (NYSE: F  ) and General Motors (NYSE: GM  ) have similarly deployed huge resources to increase their presence in China, compensating for losses in Europe and giving hope to their shareholders.

Tomorrow's cooperative economy
These examples just scratch the surface of China's many positive effects on the American economy and investors. Americans should eagerly await further Chinese economic growth that will fuel their financial dreams, not cry foul in a shortsighted battle of GDPs that only hurts everyone's growth.

Certainly, friction will arise between the United States and China. Political battles will be waged; populist phrases decrying China's growth will be slung. Investors need to know that China's growth isn't to be feared, however. Indeed, without it, Americans would face a drastically different future without many of the amazing opportunities they face today. The U.S. should cheer on China's rise and work to grow hand-in-hand, not condemn it out of petty partisanship. It's time to look forward to a globalist future.

Investors like you need to have the best information on hand to make smart decisions for the future. To learn more about the opportunities and threats faced by some of the companies mentioned in this article, check out The Motley Fool's premium guides to Apple, Caterpillar, Ford, and General Electric. You won't want to be left behind in tomorrow's rewarding future for these corporate titans.

Fool contributor Dan Carroll holds no positions in the stocks mentioned in this article. Motley Fool newsletter services have recommended buying shares of Ford Motor and Apple, as well as creating a synthetic long position in Ford Motor and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (15) | Recommend This Article (29)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 31, 2012, at 2:58 PM, Shepp67 wrote:

    Does every article now either push a 'premium' report, or some other advert for all the other products MF pushes?

    How about some articles that just 'give the facts, ma'am' and doesn't end in a; 'but wait, for a limited time we are...' pablum ?

    Geez - as an SA member I would think your technology people would figure out a way to stop trying to sell me an SA subscription in an article (or some other random item for sale).

    One reason I am letting my SA expire is due to this constant buy this, download premium that, etc. at every turn on this site. It's gotten far worse in the past 6 months or so.

    Pump (your services) and dump (our $ into your MF account)=getting old.

    Please, note in my account to NOT send solicitation emails asking (begging) me to renew at 50%/60%/etc% discount.

  • Report this Comment On August 31, 2012, at 8:11 PM, RadWriter wrote:


    This is largely rubbbish, and you ought to know better.

    1. EVERYTHING that transpires within every single corporation or other form of enterprise is precisely a zero sum game.

    2. While macroeconomics is NOT a zero sum game in principle, in the era of austerinomics, we are witnessing a negative sum game within many nations' borders.

    3. I certainly wish the Chinese well. And I welcome their domestic growth. But I want them to abandon the predatory export economy they copied from the Japanese. We built the greatest economy in human history in the US by building domestic consumption because of widely distributed rewards. That is not how any of the Asian powers have built or are building their economies.

    4. Unfortunately, that is the reason the US economy is performing so far below capacity, i.e. the US has internally changed from widely distributed rewards to a narrow distribution of rewards. The highest echelons are grasping all the fruit of American's labors and leaving us with the pits.

    5. Offshoring becomes a self-fulfilling and self-defeating policy as incomes for the 90% stagnate and decline, thereby curtailing their purchasing power making it necessary to cheapen products by exploiting abused labor abroad.

    As the cycle continues, we will witness over time a death spiral in our economy and our society as America resembles more and more the notorious banana republics of the 20th century despite all the BS about why offshoring so much production is a good thing. It is not. It is suicide.

  • Report this Comment On September 01, 2012, at 8:54 AM, ETFsRule wrote:

    Great article. It seems that a lot of people are predicting doom for China's economy - not because it is the most likely outcome, but because it would provide validation for their ethnocentric understanding of the world.

  • Report this Comment On September 01, 2012, at 12:18 PM, wjcoffman wrote:


  • Report this Comment On September 01, 2012, at 12:46 PM, jfrankh57 wrote:

    Were China a decent trading partner I would agree, but everywhere you turn and historically, the opening of the China market has led to massive ripoffs and a thoroughly tight market there while ours has been wide open! You see the occasional decent company, but even Motley Fool has chozen many bad invests there...more companies have lost us money than the numbers that have paid off...

  • Report this Comment On September 01, 2012, at 12:54 PM, jfrankh57 wrote:

    Radwriter: Many of your points are on the money...just wish these guys and the rest of the investment community would realize that off-shoring has and will affect our economy severely in the end...we already see it with the shrunken manufacturing capacity that no amount of "service" industry will overcome. A thriving economy is a diverse economy...All of the college degrees in our society cannot even make one electrical generator or one fishing vessel without the few engineers and the many technicians/worker bees necessary for such endeavors!

  • Report this Comment On September 01, 2012, at 2:41 PM, jracforr wrote:

    I don't think anyone questions the wisdom of doing trade and investing in china,rather the concern is for it to be done in a fair and balanced manner. One in which Chinese labor is not exploited to make cheap products, which undermine their consumer market and the US Industrial base . Many American companies are kept profitable by their Chinese subsidiary and this may well be the future for a significant portion of our industrial base. However if the importance of labor is overlooked in this equation we will simply repeat the revolutions of the early 20th century.

  • Report this Comment On September 01, 2012, at 2:59 PM, jracforr wrote:

    It may take us awhile to realize that when real-estate speculators price office and industrial rental at $1700 / SF, companies have no alternative to moving to Asia, where wages and infrastructure costs are lower. By blaming the flight of industrialist to Asia on corporate tax rate we are being delusional or dishonest.

  • Report this Comment On September 01, 2012, at 3:42 PM, xetn wrote:

    Offshoring is a direct result of high US taxes and monumental regulations which, if you wish to remain competitive, you have to leave.

    All international trade is beneficial, as is competition and it tends to drive down prices and lower prices is a good thing for consumers. This allows for the division of labor which results in specialization. You only have to contribute your part and everybody else contributes theirs.

    Do not forget that nobody forces you to purchase anything you do not want, nor will you part with your money unless you think the good you are exchanging you money for is worth more than the money (subjective value).

    Thanks to every central bank in the world creating massive amounts of money out of thin air in an effort to lower their individual currency to induce trade, we end up with trade wars, high tariffs on domestic goods to protect domestic companies and labor unions.

  • Report this Comment On September 01, 2012, at 3:55 PM, oberta wrote:

    A very good start in 2012 by exporting 100 billion, also a good direction to increase to yearly interest on the hudge debt with China!

  • Report this Comment On September 02, 2012, at 7:14 AM, truth4u wrote:

    Sounds like a, "Pep Talk," for more off-shoring of American jobs.

    Fool me once - - shame on you! Fool me twice - - shame on me!

    Typical Wall Street Hype, in an attempt to get into one's Wallet.

    Globalization has brought 400 Million Chinese to Middle Class Status; while sending 50 Million Americans to the Poor House.

    Apple's profit margin is disgraceful! Yet, that isn't the end of it. The Bastards are parking their profits in off-shore Banks - - hoping for a, "Tax Holiday;" so they can bring the money back to the States without paying income taxes.

    Apple created 300,000 jobs in China (via Foxconn), at an hourly rate of $1.36 an hour. Then, those workers have reportedly been exploited.

    Don't get me started on Boeing and Caterpillar. I will eat your lunch on the like's of those two.

    There will likely be no Revolution here. What there could be is a National Boycott of all Ruthless Capitalist Predators; and, the formation of Alternative Regional Economy's . . . Think it can't be done?

    The Predator Capitalist Ball Buster

  • Report this Comment On September 02, 2012, at 11:57 AM, wjcost wrote:

    This is the most perceptive article on economics that I have seen in a long time. It is directly beneficial to all Americans that the Chinese economy continues to improve. It is already resulting in return of manufacturing jobs to the US. What we need to do is increase investment in education and training lest we continue on our path to becoming a nation of spoiled, uneducated whiners.

  • Report this Comment On September 02, 2012, at 8:58 PM, NickD wrote:

    China is huge 1billion plus all i see is dollars $$$$$$

  • Report this Comment On September 06, 2012, at 12:22 PM, JimmyZangwow wrote:

    Hooray for China!

    But seriously, thanks to RadWriter for an insightful encapsulation of how current economic distribution in the US has come to resemble the historical Asian model.

    I'm no "occupy Wall Street" aficionado. I like it when stocks go up, and regret when they dive. But I realize that success today can spell trouble tomorrow if sound guiding principles which account for the "Big Future Picture" are not in place. Such as some sense of sustainability, not milking the cows so dry that they can't produce anymore, etc.

    Profit and ridiculously high compensation for the highest corporate echelon are the only mandates. Over the longer term, that mentality can turn a country into a banana republic, or alternatively, a smartphone republic.

  • Report this Comment On November 03, 2012, at 12:07 PM, Questionable2 wrote:

    How much of the US 100 billion $ exports to China is coal?

    PS I had to create a new post name as my previous post name is already taken (by me)

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2003481, ~/Articles/ArticleHandler.aspx, 10/28/2016 6:23:39 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,161.19 -8.49 -0.05%
S&P 500 2,126.41 -6.63 -0.31%
NASD 5,190.10 -25.87 -0.50%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/28/2016 4:00 PM
AAPL $113.72 Down -0.76 -0.66%
Apple CAPS Rating: ****
CAT $83.88 Up +0.87 +1.05%
Caterpillar CAPS Rating: ***
F $11.72 Down -0.02 -0.17%
Ford CAPS Rating: ****
GE $29.22 Up +0.59 +2.06%
General Electric CAPS Rating: ****
GM $31.32 Down -0.01 -0.03%
General Motors CAPS Rating: ***