Printer Friendly Version
Chinese Companies Will Need To Build Trust
Modern economies run on trust. We purchase toys trusting they’re lead-free. We buy tires trusting they’re safe. And we even procure dog food trusting it isn’t contaminated with poisons.
Unfortunately, some Chinese-made products have recently violated American consumers’ trust. China’s repressive political system will cause such violations to occur again unless the country’s manufacturers get some expensive help from Western brands.
In repressive political systems the powerful control the flow of information. This means the powerful can do wrong and often be confident their wrongdoings won’t be exposed. If a Chinese newspaper reporter dared harm the economic interests of a powerful business, that reporter would likely go to jail. Similarly, a Chinese regulator who stood up to the rich and mighty would quickly lose his job and his freedom.
A U.S. newspaper reporter or government regulator, however, would advance his career by uncovering an American company selling dangerous products. Knowing that others would benefit from exposing their wrongdoing provides incentives for U.S. companies to maintain high safety standards.
And unfortunately for Chinese businesses, the United States has a free press that loves to report corporate misdeeds. As a result, the fact that millions of Chinese-made products have been recalled for safety reasons has received wide play and tainted Americans’ views on the quality of all Chinese-manufactured goods.
To restore their reputation Chinese businesses must turn to Western brands for help. Western companies build consumer trust through brand names.
Consumers are rational to trust branded products so much of the time. Companies spend millions promoting brands. If a firm sells quality products under its brand, consumers will remember their satisfactory buying experiences and be more likely to buy the brand again. But if a branded product goes wrong, consumers will question the entire brand’s trustworthiness.
Since many Americans now won’t trust Chinese-made goods, China will have to sell products to Americans through trusted Western brands. China’s greater need to ally with American brands will increase the negotiating power of such brands and so reduce Chinese profits.
Of course, many of the recalled Chinese products were sold to Americans under well-known brand names such as Mattel. In selling these dangerous products, Mattel failed its duty to consumers. Mattel probably had too much trust in its Chinese suppliers. I suspect that from now on, Western brands will sell Chinese goods only after conducting careful and expensive inspections, the cost of these inspections being borne by Chinese manufacturers.
The greatest harm to China, though, may be delivered by U.S. politicians. Many American politicians have advo-cated increasing trade restrictions on Chinese goods. So far they have justified their anti-trade policies based on economically silly concerns over Chinese currency manipulation.
It will, however, be far more compelling for them to say that trade with China must be curtailed because Chinese products have endangered American children.
James D. Miller is an associate professor of economics at Smith College in Northampton, Mass. His latest book is Singularity Rising: Surviving and Thriving in a Smarter, Richer and More Dangerous World (BenBella Books), on sale in October.