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A Consumer Paradise

China has helped create what seems like a shoppers' paradise in the U.S., as well as in other countries. Many of the product lines that China now dominates, like wristwatches and bicycles, experienced an unprecedented real price decline. This has been good news for consumers. The commoditization of previously branded products has brought into the market consumers who in the past could not afford the product and enabled others to shift portions of their disposable income toward the purchase of higher level or a broader array of products and services, including those domestically made. At the same time, the flood of Chinese imports is creating unprecedented pressures on manufacturers who rely on brand name or country-of-origin impact (such as Italian leather goods), especially for below-luxury products, which were already pressured by the expansion of large discounters.

The growth of Chinese products on American store shelves is related closely to the rise of discounters like Wal-Mart, for whom China is progressively becoming the cornerstone in a strategy of offering the lowest possible prices for broad merchandise offerings. Wal-Mart, like other discount retailers, is becoming more and more dependent on China to provide offerings at "can't be beat" prices. The relation is symbiotic: China is dependent on Wal-Mart and like retailers to gain market entry for its yet-unknown brands by leveraging the retailer's name and huge scale. The cooperation is helping Wal-Mart solidify its position as the largest retailer in the world, while enabling Chinese firms produce to scale, which is a critical variable in mass-produced merchandise.

China's ascent may have broader consequences for the American consumer and, by the extension, for the U.S.' social and political landscape. Until now, complaints by manufacturing employees that the purchase of foreign products was undermining their livelihood, and hence the livelihood of other Americans whose products they would not be able to purchase once they were out of a job, fell on deaf ears. As long as the economy was quick to recover and create jobs, it was easy to sidestep the negative sentiment by showing the benefits of an open trade system for job creation and wealth. This time around, there seems to be at best an unexpected lag in job creation and at worst a structural change limiting job creation. With programs devised to handle the plight of trade losers lagging behind, the atmosphere is changing even if trade is only one factor contributing to job losses. Politicians are catching up with the new sentiment, and consumers may, too.

The Chinese challenge is of a magnitude that may alter the purchase equation, igniting a "buy American" debate. This could fundamentally change purchasing choices, replacing a cost/reputation formula with one incorporating job preservation as a key consideration. American consumers are said to prefer foreign brands, a preference used as one explanation for the huge trade deficit. Consumers have been willing to pay a premium for European and Japanese brands even under seemingly identical quality with U.S. brands. (Note, for instance, the premium that customers pay for the Toyota product versus the GM vehicle coming out of the same joint venture factory.) However, as the recent drop in French wine consumption following the Iraq war suggests, American consumers do not lack the ability to link their purchasing decisions with geo-politics, animosity perceptions, and other "nonrational" considerations. These considerations may yet come to occupy center stage in a fiercely contested consumer market.

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