China powers the world and is eating the global export lunch. Call it a massive dislocation because there is no comparison. The US is sub-8% even as most expect China to hit 25% as a result of the covid-19 black swan. This is not changing anytime soon as China is ramping up more trade surpluses against the U.S. because everyone likes good deals. Yes, despite the trade deals from President Trump, the trade imbalance has exacerbated under his watch.
Visit a mall and see those stores with “Proudly Made in America” merchandise. Admire the flags, move around, and then make way towards Walmart to buy Made in China version. There is a reason that is happening: pricing. Yes, at Walmart, you can spend just 30% of the amount for something fairly good enough, and that product was stocked from China. Saving money is not a political agenda – that is why you have Walmart in Blue and Red states. Everyone likes to save, and China makes that possible using the construct of Minimum Viable Quality (MVQ).
Without the cost context you can think that the cheap one was a poor job. It is indeed not a great quality product but that was by design. That is what the market for toys wants because the kids rarely use them for days before they are discarded. It is a mass market product which has to be affordable to make sense. That does not mean that you cannot make very expensive toys only few can afford. But what is the purpose? Put a $260 XL in a toy which would be dumped within days?
The deal is this: the construct of quality has no meaning until the price of the product is put into considerations. I always ask entrepreneurs to build for the Minimum Viable Quality (MVQ) bounded by the product target price which market will respond. You can build rockets to fly around the world: that is an engineering possibility. But does that make a business sense if no one can afford it? Ask the makers of Concorde for answers.
China is China. Alipay processed $18T worth of transactions in 2019; Visa and Mastercard combined for $16T. Visa and Mastercard served the whole world, yet China beat them. In the last 10 centuries, China has dominated at least 6 times. Sentiment or not, hate or like, I want to ask you one thing: What is Your China Strategy?
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