The American Entrepreneurs Who First Opened The Chinese Market

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1:23Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. And I'm Tracy Alloway. Tracy, needless to say, always a lot of anxiety about the U.S.-China trade relationship these days. I feel like there are new tariffs and new developments or new conversations about overcapacity and EVs and new headlines about planes and stuff basically every day right now. Yeah, there were new headlines this morning, weren't there, from one of Trump's economic advisors? Right. I can't remember what it was. Oh, that's why God created tariffs. Oh, yeah. But you're absolutely right. I mean, it's been years, if not decades now, where China manufacturing has been this sort of thing that looms large over the U.S.

2:05economy. And I think what's interesting about the U.S.-China economic relationship is the way we think about it or the way we talk about it, it seems almost like it was an inevitability. Yeah. Like it was inevitable that the two biggest economies in the world were going to have, you know, some sort of trade relationship. And maybe because of specific decisions undertaken by the Chinese leadership, like Deng Xiaoping or whoever, to build out the Chinese economy in a certain way led to a lot of the increased tension. But, you know, in advance of this discussion, I was kind of thinking about it. There was no inevitability, right?

2:45Like India could have been our biggest trade partner. Yeah, that's a really great point. Or we might not have like a big trade relationship at all. Or China could have been more like Russia in which trade is very modest. Right. Like this idea is like, OK, the U.S. is rich and we do services and stuff like that here. China is poor. Their comparative advantage is cheap labor. Therefore, China produces everything or produces a lot. That's how we talk. And it just sort of seems, as you say, like, like, yeah, inevitable. This is the natural order of things. But there are lots of countries that have big populations that aren't particularly rich or that aren't manufacturing powerhouses the way China has.

3:28So I think it's interesting, as you say, like there's this conversation, like it's sort of inevitable. And we talk about it now, like, OK, this is the state of things. Do we want to change it, et cetera? But really not much conversation about like how we got here or how we built this relationship in the first place. Yeah, I think there's going back to that inevitability point. There's usually an underlying tone of like, well, the market's going to market. Yeah, market's going to market. Market's going to market. Invisible hands going to invisible hands. That's right. And that's how we ended up with, you know, lots of stuff being built in China where there is cheap labor.

4:01By the way, Joe, I'm old enough to remember when I was living in Japan. We're both old enough, but go on. Yeah. When I was living in Japan in the 1980s, I distinctly remember that most of my toys, like my cheap little plastic toys, they all came from Taiwan. Right. And I remember when I was like six years old, not really understanding where Taiwan was or what it was at that point. But I distinctly remember like thinking that it was this magical land where all the toys were made. but you know like in the 1980s i guess we were in that transition point from moving from taiwan being a massive manufacturing base into china but even as late as like the early 1980s taiwan was still making a lot of stuff for me when i was 10 years old i lived in malaysia for a year and then i have this memory of like visiting a friend's house when i was 11 back in the u.s and i noticed that one of his hot wheels was made in malaysia and i was like oh that's so cool i didn't even know like anyone else had heard of Malaysia.

5:00And so the idea like that this company had gone to Malaysia to manufacture the Hot Wheels, I just thought was like so cool. It was like, oh, I've been to that country. I didn't know anyone else knew about it, let alone going up to setting up a toy manufacturing operation. I guess there's a little bit of a diversion, but it does remain true that a lot of the countries that are powerhouses of advanced manufacturing were one-time powerhouses and still are of low-end manufacturing. Absolutely. So I think it's worth digging into how we actually ended up in this now contentious trade relationship with China and why it is that, you know, instead of maybe selling a bunch of American-made goods into that market, we ended up buying a bunch of Chinese-made goods.

5:43And this is the other thing, the other key point here, which is that for a long time, and even still to some extent, you hear like the dream of selling it to China. Oh, if we could sell one box of tissue to every one billion or more than one billion now citizens of China, that'd be billions of dollars, et cetera. And I think a few companies have done that. You know, Starbucks sells a lot in China and Nike sells a lot in China, et cetera. But by and large, the idea of China is this huge consumer market for American made brands. It exists to some extent, but probably not exists to the full like dream that people have imagined.

6:20Yeah, I think that's right. Okay, well, I'm really excited. We do have the perfect guest to talk about how the U.S.-China trade relationship was really born. We're going to be speaking to Dr. Elizabeth Ingelson. She is an assistant professor at the London School of Economics and the author of a new book that came out this year called Made in China, When U.S.-China Interests Converged to Transform Global Trade. So, Dr. Ingelson, thank you so much for coming on Odd Lots. Hi, Joe. Hey, Tracy. It's great to be here. Thank you so much for coming on. Why don't we start with why this book? What was it about this topic, Made in China, that in your view was important enough that this is a focus for a book?

7:02Well, it's interesting hearing the two of you recollect your own engagements with Made in Taiwan or Made in Malaysia, because in many ways I didn't start off thinking I want to write this book. I started off as a history undergraduate and actually a major in literature, even more in history, and was really as an Australian growing up, just as the Cold War was ending and into the 1990s and 2000s, the US and China were always the two biggest powers in the region. They still are today. And it was the early 2010s. And at that period of time, political scientists, policymakers, they were talking about the US-China relationship in terms of its economic interdependence.

7:52They were saying there's so much at stake in the relationship, especially economically, that the US and China aren't going to risk what they have for some kind of geopolitical conflict or diplomatic tensions or worse, right, or war, that the interdependence itself is enough to mitigate that. And I wanted to learn more about this. I wanted to think through where did this interdependence come from? How did we get to a state in the 2010s where the United States and China did have such an entwined economic relationship? And that really took me down this path of research and thinking and going to archives all over the world, but particularly the United States.

8:36And here we are today with the book. So when I think of the way a lot of people talk and write about China's economic history, I feel like so much of the focus is on China's opening up, right? And caveat here, right before I cracked open your book, I was reading another book on China called Wild Ride, A Short History of the Opening and Closing of the Chinese economy. And I mean, the clue is in the title there, right? The emphasis is very much on the decisions that are being made by China. So I'm curious why you decided to come at it from a slightly different way and from maybe some of the decisions, both diplomatic and economic, being made by the US and the rest of the world.

9:19I think one of the things that you are trained to do as a historian is to denaturalise things, to look at a moment in time, and you seek to question the assumptions of the people operating in that period of time. And so, as I mentioned, I wanted to sort of historicise or work out where this interdependent relationship came from. And it led me to the 1970s. It led me to this period when the US and China were rebuilding a trade relationship after over 20 years of Cold War isolation. So throughout the 1950s and 1960s, both countries had very little, in fact, none at all economic contact and very little social and political contact at all.

10:06It was a very strict Cold War embargo. It was a consequence of the Korean War, but it was also a consequence of Mao declaring the People's Republic of China. So it's this height of the Cold War tensions. And then in the 1970s, you have the famous Nixon-Mao meeting, the opening up of relations and the softening of these tensions. And it's in that period in the 1970s that the two countries rebuilt a trade relationship. And you've really got to sort of think about what it is that these people seeking to rebuild a trade relationship were assuming, and rather than accepting those assumptions, critiquing them.

10:44And so that led me then to not just look at the business people within the United States and within China, but a whole range of other actors who were part of this interdependence that was being built. So I look at diplomats in both countries. I look at labor unions. I look at consumers, particularly within the United States. I look at retailers within the US. And one of the things that I found as I was doing this research was that understanding how this relationship was rebuilt was really a story not only about rebuilding a trade relationship, but a much bigger question of how does China, the world's largest communist nation, how did it converge with global capitalism?

11:30And as you've mentioned, Tracy, when people think about the history of China's engagement with the capitalist world, Deng Xiaoping's reforms loon very large, and rightly so. They're very, very significant moment in the history of China's political economy. But in looking at this 1970s period, started to see, well, actually, a lot of the experimentation and a lot of the groundwork for what led to Deng's reforms in the very late 1970s and really the 1980s, a lot of those experimentations within China were already happening in the 1970s. And even more than that, I realized that one of the major assumptions that needed to be critiqued was that China wasn't just converging with a static capitalism.

12:16China was converging with a system that itself was undergoing significant transformations in the 1970s. And the biggest capitalist power at the time, the United States was at the heart of many of these transformations occurring within the capitalist system. And so what I trace in the book and what I realised needed to be historicised and understood was a way that these two different spaces, experimentations within China, but also the United States and its economic turbulence during the 1970s, the way that those two different spaces intersected and ultimately through the decisions and actions of certain groups within those two places ultimately converged.

13:03And so it's a story of change within the capitalist system as much it is a story of change within China. And I was particularly struck by the way that those two factors began to converge in particular ways.

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14:46Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash market. Paid for by Public Investing. All investing involves the risk of loss, including loss of principal. Brokered services for U.S.-listed registered securities, options, and bonds in a self-directed account are offered by Public Investing, Inc., member FINRA, and SIPC. Crypto trading provided by ZeroHash. Complete disclosures available at public.com slash disclosures. It would be an easy story if the story were simply just Mao dies. There's a little bit of turmoil. China spends a couple of years figuring out who's going to replace him.

15:22Deng Xiaoping comes into power, opens up suddenly. They're capitalist or something. But obviously, that's not the story. Well, let's talk about some of these specifics in the early part of the 1970s. Who were the first movers in the US who sort of sensed an opportunity to trade with China in some form or another? And then how did they do it? Because still, I guess, maybe I just my mind is in sort of the standard narrative where it's like, oh, trade with China is impossible. It's a communist country where there's no free enterprise or anything like that under Mao. But talk to us about like the first people who sort of sensed an opportunity and sort of operationally what they were able to do under the existing environment?

16:05Yeah, well, there are a couple of different groups of individuals or groups of business people that I particularly focus on. It was really important to my own analytic unpacking was to think about which kinds of business people and which kinds of American actors were beginning to trade with China. So on one level, there were the big companies, the Boeings, the Westinghouses, etc. So there were these very significant and large titans of American industrial capital who were looking to China really from the get-go and saying, we want to sell our planes or we want to sell fertilizer factories or what have you to China.

16:45The end sort of result of those attempts were far more murky, and I can get into that in a minute, but some of the more surprising groups, in addition to perhaps the more standard or expected groups of American business people were these very maverick, entrepreneurial American business people, some of them with very little prior business expertise, who saw in China opportunities to really take a gamble. And so one of the people that I look at who really was at the forefront in opening up the trade relationship with China was this woman named Veronica Yap. She was an architect in the early 1970s who was born in Shanghai, had family in Hong Kong, but had grown up in the United States.

17:29And she, when she sort of heard that Nixon was easing trade restrictions, saw an opportunity to import from China. And so she began, through her connections in Hong Kong, to import a whole range of different kinds of goods. So she was importing cheap owls and now coats and a whole range of things that were overtly Chinese. And she very quickly made enough money that she was able to quit her day job. And she was one of a group of these small scale importers who really led the way in not only importing from China, but the result was that they were selling China to American consumers. They were helping the larger diplomatic thaw by easing American consumers and therefore American voters into engaging with China in a very new way.

18:24And so in the early 1970s, one of the really important results of these importers was not only in the diplomatic and economic realms, but in the cultural shift in sort of allowing for an acceptance of engagement with China. And that, I think, has a really important longer-term impact on the way that the trade relationship unfolded. So I trace the story of Veronica Yap and a few other importers who, by the mid-1970s, while they continued to import Mao coats and continued to import things that were overtly Chinese, also began to import things that had no real connection to China at all. So Veronica Yap, for example, imported these really amazing 1970s high-heeled men's shoes and like really 70s stuff that had no connection to China other than the label saying made in China.

19:21And in order for that acceptance of engagement on everyday granular level with China, in order for that to occur, it necessitated the large-scale celebratory cultural transformation of engagement with China that was certainly there from the start of the 1970s and very much continued in throughout the 70s as well. And so there's this real dynamic occurring whereby American importers and retailers, those selling Chinese goods, begin this much larger transformation in what it means to even trade with China. Because as you mentioned at the beginning of the segment, for centuries, not just American traders, but foreign traders had looked to China and seen in the China market a promise of selling to China.

20:15In the early 20th century, a very well-known American ad man, his name is Carl Crow, a maverick businessman of his own, with his own fantastic story, he wrote a best-selling book in the United States called 400 Million Customers. It won the National Book Award. It was this, you know, really big moment in thinking through what the China market represented. And so he sort of crystallised this idea that China represented 400 million customers. And yet 30-odd years after Karl Crow's book, in this 1970s moment, I began to see that, yes, you have your Boeings and your Westinghouses wanting to sell to China, sort of treading the path of the Karl-Kruh vision of selling your goods to China.

20:59But I began to see also the actions of people like Veronica Yap and other importers and retailers began to reconfigure what it means to speak of the China market and what it means to speak of US-China trade. So you just laid out the sort of cultural diplomacy via textile imports very well. But it still sort of leaves a little bit of tension between diplomacy and geopolitical aims versus economic ambitions. And one of the things I thought was interesting in your book is you sort of lay out a difference in mindset between the U.S. and China, which is very often Chinese leaders are sort of putting diplomacy or geopolitical goals before business.

21:48So if you agree to do what we want in terms of politics, then we'll trade more with you. But for the U.S., it's very much business before diplomacy. So let's build up our economic relationship and then we'll see how all the other stuff goes. How were they sort of able to surmount that difference of perspective in order to get the economic relationship really going? Yeah, well, this was one of the things that was so surprising to me about how I make sense of the diplomacy of this trade relationship. And I had assumed that the trade relationship would, from the US perspective, be understood as something that would assist the larger diplomatic aim.

22:32Because in this period, the diplomacy of the period is really what was driving the relationship. And it's certainly what has driven scholarship on the topic. So it's a period where the two countries sought to rework how they can have full diplomatic normalisation. And the big sticking point was Taiwan. So how can the United States and China have embassies and a full diplomatic relationship? And what did that mean for Taiwan? So that was the big question. And that's usually how people think about 1970s US-China relations. They don't focus on the trade relationship. and a very significant reason for that is that the trade numbers were really low but precisely because the trade numbers were low is why it's really important because when we look at the trade not in terms of sort of the quantity of trade or the level of trade but in terms of sort of qualitative changes that's where it matters and so if I come back to this point that I made earlier about unpacking the assumptions of your actors at the time the U.S.

23:35actors that I look at the US diplomats and at the executive level, so Nixon, Ford, Carter, they all assumed that the trade relationship that they had reopened with China, that that would assist the larger diplomatic aims that they had, which is full normalisation with China. And so because trade was understood as a tool to assist this larger diplomatic imperative, it was sort of seen as a secondary thing that would ease what really mattered to them was this normalisation. And that therefore coincided with very different, as you've outlined, Tracy, a very different assumption on the part of Chinese policymakers, who, as the archival documents sort of reveal, who took a very overt and very different approach towards the relationship between trade and diplomacy.

24:23They said, no, we're working towards normalisation with you, United States, but you only get trade benefits with us after we have improvements in those diplomatic conversations. So only after we can have concrete steps towards normalisation. But where the sticking point lay was in Chinese sales of goods to the United States. Because even though Chinese leaders said, no, we're going to take a very different approach, trade comes after improvements, not before, there was a distinction where they said, okay, we'll allow for our sales of our goods to the United States. That wasn't the sticky point.

25:02That was eased partly because it gave them cash to buy other things from other countries. And so, in other words, imports to the United States of Chinese goods became a space that was within Chinese leaders' political interests, but it also became one within the US policymakers' interests too because of that assumption that they had, which is let's use trade to help the larger diplomatic situation. And because the numbers were so low, it didn't seem to matter that, you know, helping China sell some of its textiles to the United States, that wouldn't have a big, or was perceived to not have, you know, a particularly negative consequence.

25:44Of course, the story is far different to that, but the political assumption was something that I myself really wanted to denormalize and denaturalize and unpack. So when people think about the history, there's the Mao era, there's the Deng era opening up. Okay, so maybe that was an important shift, but there was more to it. But the other thing you said, which I thought I wanted to go back to is that capitalism in the United States was not some fixed permanent state, that the US was also undergoing a transition. And it was the inflation of the 1970s and there were the wars. And there was the fact that Nixon went off the gold standard in 1971.

26:25And that was a big deal. Talk to us about the state of flux that America found itself in in the 1970s, such that both for diplomatic and, I guess, trade or sort of commercial reasons, there was this impulse to figure out more about what could be done with the China market. Yeah, I mean, this is such an important part of the story, right? As you say, Joe, Nixon ending a gold standard, the end of Bretton Woods, it occurred within a month of Nixon's announcement of his about to go to China. And so they're often paired as these two Nixon shocks. Yeah. They're paired because they were shocks, because of their style rather than the substance underpinning them.

27:07But when you look at American business people and American corporations, these two Nixon shocks actually worked together and so they're how I begin the book is with these two shocks and and their lasting and very unintended consequences so something like the ending of the Brennan Wood system but also by sort of the mid-1970s US Congress passes the 1974 Trade Act and some of these key legislative changes are crucial to the ways that American policymakers sought to encourage the development of American manufacturing and finance and the relationship between those two things. So we speak today of sort of neoliberalism or globalization, but these are very much processes that were the products of deliberate decisions.

28:01And in the book, I suddenly try and pull out some of those core decisions that had these long-lasting repercussions. So the end of Bretton Woods and the sort of the freeing up therefore of capital was crucial to the capacity eventually of US corporations to invest their money overseas and have offshore manufacturing. It's hard to imagine today, and I always stress it, is, you know, in 2024, we take for granted the fact that we have sort of outsourced manufacturing and and supply chain networks and all the rest of it. But in the 1970s, these dynamics were very much only developing. There's nothing about that that was certain.

28:42American businesses, as you mentioned, Joe, there's significant inflation. They very much felt like they were under attack from a whole range of different spaces. Labor unions were very, very active in this period. And so there was nothing guaranteed in the world that we live today. But there were certain steps, both legislative as well as within the corporate world that did lead to what we now have of sort of offshore manufacturing and other things. So just to give you an example, JCPenney is one of the big sort of retailing companies that I look at in the book. And they had in sort of the early 1970s, 1973, only about 10 % of their entire stock was goods that were made not in the United States.