Who pays the price for cheap goods?

As my wife can well attest, it is common for me to browse with her in a U.S. shopping mall and declare, “These prices are too low.”

Whether it’s shoes or clothing or camping gear, all of it from China, it strikes me that the sale prices don’t always reflect the real costs. That sense has grown deeper since we’ve been in China, even if not well-articulated in my own mind.

I’d pick up a pair of well-made thick leather shoes, and think, “These have to be worth more than $20.” I’d buy them anyway, and feel a little smug at the savings.

But after visiting riversides polluted by tanneries along the Yangtze River, I sensed that the price of the shoes did not reflect the despoiling by the factories.

Then there was the time in 2004 when I wrote about Chinese workers who lose parts of their bodies on the job or are otherwise maimed. A state newspaper said 40,000 cases occur each year, and sitting in a lawyer’s office in Shenzhen surrounded by workers with missing hands or fingers, the figure seemed plausible.

A few months later, I stood outside a hospital in Guangdong province where some 100 or so workers were being treated for the horrific effects of cadmium poisoning. They'd been producing the kind of alkaline batteries we use around our house all the time.

Certainly if factories had to pay insurance premiums that valued these workers’ health, production costs would go up. We Westerners get our low prices, and the workers in China pay with their bodies, their health and their ruined environment.

I thought about this again today as I read an excellent Asian Wall Street Journal report suggesting that powerful U.S. businesses are partly responsible for the pollution in China. Here is a key part of the story:

“In the more than two decades since international companies began turning to Chinese factories to churn out the cheap T-shirts, jeans and sneakers that people around the world wear daily, China's air, land and water have paid a heavy price. China has faced harsh criticism in recent months over the safety of exports ranging from tainted toothpaste to toxic toys. But environmental activists and the Chinese government are increasingly pointing to the flip side: the role multinational companies play in China's growing pollution by demanding ever-lower prices for Chinese products.

“Prices on fabric and clothing imported to the U.S. have fallen 25% since 1995, partly due to the downward pricing pressure brought by discount retail chains. One way China's factories have historically kept costs down is by dumping waste water directly into rivers. Treating contaminated water costs upwards of about 13 cents a metric ton, so large factories can save hundreds of thousands of dollars a year by sending waste water directly to rivers in violation of China's water-pollution laws.

"Prices in the U.S. are artificially low," says Andy Xie, former chief economist for Morgan Stanley Asia, who now works independently. "You're not paying the costs of pollution, and that is why China is an environmental catastrophe."

In many cases, price tags in stores clearly don’t represent the real costs of production.

Comments

[Patrick Lee]

Excellent points, Tim. This is a tragic side of the story that needs to be told, but how many bargain-hunting Americans really want to hear it?

[A Farouk]

Excellent points I agree and added to that, the hypocrisy in criticising China for its environmental records when it tries to host the Olympic Games. Well, it might be that we don't like to pay extra for goods, but if we are conscious enough about the effects want to make a difference then we'd contribute to that. The effects of global worming are felt around the whole globe and we need to do something about it now at every level.

[Don Phillips]

I agree that the goods are too cheap. Unfortunately, realization of that fact is not wide spread. Too many of our politicians ignore this fact in their worship of "free" trade.

It is very important to recognize that cost of the important social goods which should be part of the price of goods but is not when their manufacture is outsourced to China (and some other countries). Such goods include not only health insurance, pension costs, and other costs for workers and citizens of the producing country, but also the costs of inspection, testing, and enforcement of purity, environmental, and safety standards which protect the ultimate consumer.

The ability to avoid such costs as a part of the cost of goods is undoubtedly a large part of the move to either outsourcing production to, or purchase of goods from other companies in countries where such costs can be avoided.

There can be no level trading ground as long as such disparities exist and are not balanced by tariffs. We not only suffer from contaminated imported food, etc., but the large cost for social goods (medicare, etc.) that would be paid as a result of manufacture, etc. here.

[MS]

The nation's largest retail chain, WalMart has led the pack in squeezing suppliers -- in the U.S. and presumably in China -- to keep consumer prices low.

That means all suppliers, Chinese or American, must squeeze workers, cheapen supplies, and make products as cheaply as possible to maintain their own (often minimal) profits.

When we buy-in to the notion of "scarcity" (that we are not getting our fair share, so we must get something at a better price), we invite companies to squeeze suppliers.

When we ask for "Fair Trade" products, we ask companies to assure that the workers and environment are protected, where the products are made.

It's time for "Fair Trade" to be more important to us all than low prices.

[mark simon]

How sad it is that a guy can spend years in China and have so little knowledge of what he write about.

It is the open and free market that has helped China develop and made the lives of hundreds of millions of Chinese so much better.

I guess Mr. Johnson, with his educated view of the world, favors the polluted rivers of Manila or Jakarta, countries that are of course so much better off thanks to no business.

And the article in the AWSJ was dumb, no one could stand in a debate and defend that piece for 10 minutes.

- Mark

[Chicago guy]

It's nonsense that Chinese companies are being victimized by corporations demanding lower prices ... corporations demand lower prices from EVERY business in EVERY country, and unlike American companies, Chinese companies willingly destroy their environment to achieve those prices.

[funny videos]

Isn't this why Walmart cannot be stopped? Maybe im wrong...