SANTA CLAUS IS CHINESE: Why China Is Rising and the United States Is Declining

Earth Policy Institute
Eco-Economy Update
Embargoed for Release
11 am EST, December 14, 2006

Lester R. Brown


I know Santa Claus is Chinese because each Christmas morning after all the gifts are unwrapped and things settle down I systematically go through the presents to see where they are made. The results are almost always the same: roughly 70 percent are from China. After some research, it seems that my one-family survey is representative of the country as a whole.


Let’s start with toys. Some 80 percent of the toys sold in the United States—from Barbie dolls to video games—are made in China. Talking toys that speak English learned the language from Chinese workers. Electronic goods—from Apple’s iPod to Microsoft’s Xbox—are made in China. Clothing—from the latest cashmere sweaters to gym suits—is also likely to have a “Made in China” label.


The Christmas tree itself may come from China. While real Christmas trees are grown in every state in the United States and are marketed locally, many families now gather around artificial Christmas trees. Eight out of every 10 artificial Christmas trees sold in the United States are made in China. Last year Americans spent over $130 million on plastic Christmas trees from China.


This year Americans will spend over $1 billion on Christmas ornaments from China. And in perhaps the greatest irony of all, even nativity scenes are made in China. Last year Americans spent more than $39 million buying nativity scenes shipped in from the East. China’s success in attracting foreign investment capital and mobilizing this huge workforce has made it the workshop of the world.


That the U.S. Christmas is made in China is a metaphor for a far deeper set of economic issues affecting the United States. Today Christmas is celebrated in both the United States and China—but for different reasons and with far different economic consequences. For the Chinese, the manufacturing bonanza means record profits, rising incomes, and, in a society where people save some 40 percent of their income, a sharp jump in savings. In the United States, Christmas shopping expenditures, headed for another record high this year, contribute to rising credit card debt and a soaring trade deficit.


Underneath the American Christmas spirit and good cheer is a debt-laden society that appears to have lost its way, marred in the quicksand of consumerism. As a society, we seem to have forgotten how to save so we can invest in a better future. Instead of leaving our children a promising economic future, we are bequeathing them the largest debt burden of any generation in history.


At the personal level, credit card debt just keeps climbing, and at the government level, we have the largest deficit in history. At the international level, we have a trade deficit that moves to a new high month after month.


It’s not the fact that our Christmas is made in China, but rather the mindset that has led to it that is most disturbing. We want to consume no matter what. We want to spend now and let our children pay. It is this same mindset that introduces tax cuts while waging a costly war. Economic sacrifice is no longer part of our vocabulary. After the Japanese attack on Pearl Harbor, President Roosevelt banned the sale of private cars in order to mobilize the manufacturing capacity and engineering skills of the U.S. automobile industry to build tanks and planes. In contrast, after 9/11, President Bush urged us to go shopping.


In the United States we are so intent on consuming that personal savings have virtually disappeared. We have an average of five credit cards for every man, woman, and child. Of the 145 million cardholders, only 55 million clear their accounts each month. The other 90 million cannot seem to catch up and are paying steep interest rates on their remaining balance. Millions of people are so deeply in debt that they may remain indebted for life.


The official national debt, the product of years of fiscal deficits, now totals $8.5 trillion—some $64,000 per taxpayer. (See data at www.earthpolicy.org/Updates/2006/Update62_data.htm.) By the end of the Bush administration in 2008, this figure is projected to reach a staggering $9.4 trillion. We are digging a fiscal black hole and sinking deeper and deeper into it.


Each month the Treasury covers the fiscal deficit by auctioning off securities. The two leading international buyers of U.S. Treasury securities are Japan and China. In this role, China is now also becoming our banker. This developing country, where income levels are one sixth those of the United States, is financing the excesses of an affluent industrial society. What’s wrong with this picture?


In times past, when our fiscal deficits were covered largely by U.S. lenders, interest payments on the debt were reinvested in the United States. Now they are flowing abroad to Japan, China, and other foreign holders of U.S. debt.


While the U.S. fiscal deficit, driven partly by the war in Iraq, soars to stratospheric levels, the country is facing an unprecedented fiscal challenge as the baby boomer generation retires, pushing up the costs of social security, Medicaid, and Medicare. This, combined with the growing interest payments on our debt to China and other countries, will put a nearly impossible tax burden on the next generation—something for which they may never forgive us.


The U.S. trade deficit is growing by leaps and bounds, nearly doubling from $452 billion in 2000 to an estimated $850 billion in 2006. Rising oil imports and the trade deficit with China account for over half of it.


National policy failures such as not adequately supporting the use of renewable energy technologies have contributed to the growing U.S. trade deficit. For example, the United States should be a leading manufacturer and exporter of solar cells and wind turbines, but it has fallen behind both Europe and Japan. The solar cell, invented at Bell Labs in 1954, is an American technology. But the U.S. effort to develop solar energy was so weak and sporadic that both Germany and Japan forged ahead and developed robust solar cell manufacturing and export industries.


The situation is similar with wind. Although the modern wind industry was born in California at the beginning of the 1980s, the U.S. failure to sustain support for wind resource development allowed European countries to largely take over this industry.


Even though rising oil imports are widening our trade deficit, we consume oil with abandon, weakening the economy and undermining our political independence.


We have lost influence in world financial markets simply because of our mounting debt, much of it held by other countries. If China’s leaders ever become convinced that the dollar is headed continuously downward and they decide to dump their dollar holdings, the dollar could collapse.


Beholden to other countries for oil and to finance our debt, the United States is fast losing its leadership role in the world. The question we are facing is not simply whether our Christmas is made in China, but more fundamentally whether we can restore the discipline and values that made us a great nation—a nation the world admired, respected, and emulated. This is not something that Santa Claus can deliver, not even a Chinese Santa Claus. This is something only we can do.


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Lester R. Brown is President of the Earth Policy Institute and author of Plan B 2.0: Rescuing a Planet Under Stress and a Civilization in Trouble.


Data and additional resources at www.earthpolicy.org


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