Rising labor costs do not present a major problem to manufacturers in China, even as they have risen over the past decade, because they comprise a minor percentage of product cost. The government-led tax incentives are the major drivers -- and the drooling (over an undersupplied consumer market not even nearly the size of the EU, but with the dreamlike possibility of "limitless growth "). Manufacturers may complain all they like, but quality concerns and theft of intellectual property have not moved them en masse out of China because they are making money in the short term.

Surely, the return of some manufacturing capacity to the US is not presently a trend of great significance. When Walmart starts sourcing its clothing in the mills of the Carolinas or when Pep Boys buy OEM replacement auto parts in Michigan -- that will be the sign of great change. And nothing like that is happening or looks like it will.

But when in Rome... If one can't get the best out of his employees -- usually done through a practical understanding of makes people tick -- he is doomed to get only mediocrity or worse. PRC Chinese in their native environment enjoy a freedom of action they simply will not obtain here: they will find themselves handcuffed in a highly regulated workplace without that necessary understanding. They are not (yet) able to adapt management style to the new environment. That is why PRC Chinese in the US prefer to hire Chinese immigrants. But I don't think most PRC Chinese are capable of such adaptation. It is not simply about language. Despite their generally admirable resourcefulness, PRC Chinese, unlike Japanese, do not, in my experience, possess the behavioral flexibility necessary for outward cultural adaptation. (I have worked in Chinese and Japanese companies in the US, Japan and China.) The adult PRC Chinese mindset, especially for those who have only arrived in the past few years, is set in stone almost.

Chinese investment in the US is not at all likely to create jobs for Americans. Now if the federal government would only create the real, substantial incentives to encourage domestic manufacturing rather than the expansion of unproductive government bureaucracy, we might see some American jobs created.

"I'll quote George Buckley, the CEO of 3M," said MacMillan. "He [made] a great comment to me about a year ago, and he's British, for the record. He said: 'I've never lived in a country where you feel like the government is on the other team's side.' " The regulatory agencies "are enforcing a level of regulation on U.S. companies that they are not enforcing on European companies or on other companies. We have companies in our industry that actively count the fact that they don't belong to the U.S. trade association because it means they can play by a different set of rules in this country. That is very troubling, to feel that the U.S.-based companies are at a competitive disadvantage in our own country."

Despite glib promises about regulatory review committees -- the harbinger of bureaucratic delay -- comments such as this from Obama's people make distressing reading. Why are these smart Ivy grads so dumb?

Over the past few days, re-reading Orwell (again) discurse on the British elite of the 1930s, I have been struck by his conclusion. While the working classes, in his analysis, favored their nation and despised fascists, the British elite worked against their own people, preferring, even actively supporting, fascists (autocratic, destructive of individual liberty) both internally and on the Continent, whether Hitler, Franco or Stalin.

Economic theory aside, after decades of political inaction to the disadvantage of American manufacturing, one is sorely tempted to conclude that the elite of American political administration has, over the past 40 years, intentionally eviscerated a bitter enemy -- the productive capitalists and their workforces -- in order to expand its realm of control.

The US is the locus of a generation-long battle fought without weapons among Americans in which the elite (subject to definition), co-opted and bought off by bureaucratic institutions, have undercut the wallets and the liberties of productive members of society, replacing their own initiative and hard work with unemployed who must turn to the state as suckling mother which has promised them the world. But a tidal wave of opposition, growing off in the distance for years, has already hit the beach in places. Cutting government administration and developing serious manufacturing policy to regrow goods production in the US would go a very long way in tamping the spark of revolt which threatens to explode in ways we have not seen in over a century.

This is the arrogance we see from Chinese government and business leaders, about which I've written any number of times. Now is the time for heightened concern and caution in dealings with PRC decision-makers.

China cut its rare earths export quotas by 11 percent in the first round of permits for 2011, threatening to worsen a global shortage of the minerals needed for smartphones, hybrid cars and guided missiles.

China's manipulation of trade matters to expand global influence, once relatively quiet and nuanced, has become overt and plainly confident (or arrogant, as you wish). A change in worldview has occurred within the executive echelons of Party decision-makers -- not sudden, but gradual. Often -- if we remember our history -- it is at times of imagined superiority that so-called Giants make their most self-destructive mistakes.

For this reason, if the rare earth debacle is indeed symptomatic of quaking earth faults within Chinese territory -- preceded by many others, including, for example, the prestidigitation which has hidden in plain sight the fundamental bankruptcy of the banking system, the stubborn reliance upon and fear of a free trading Yuan, the inability to stifle inflation, the foolish Nobel reaction, etc. -- I am very greatly concerned for the near future.

Less so for the nations temporarily with less supply of rare earths; more so for stability of daily existence for ordinary Chinese, whose life is subject to a "House of Cards" fragility of Party rule often mistaken for a steely authoritarian omnipresence and complete control. One might even hazard the guesstimate that the intelligent engineers promoted five to ten years ago to fix, design and/or build the new Chinese society appear to have fallen from favor or have lost the practical sense that brought them to their executive stations. Chinese authority is moving in another -- frightening -- direction.

One would expect an immediate US response to this announcement about rare earths, which implies serious ramifications, especially for the production of military hardware. But will it be a mere statement of policy or will serious trade leverage be brought to bear? Or perhaps additional tax and regulatory incentives for the domestic discovery, mining and processing of rare earths?

UPDATE: 12/29/10

Additional reading:

Factbox: How various industries use rare earth elements

US `Very Concerned' About China Rare-Earth Quotas - USTR Spokeswoman

Australian rare earth stocks on the rise

This suit may shed light on one bank's internal procedures used to "verify" -- one uses the term lightly -- a bank check purportedly issued by that bank.

On Tuesday, in what appears to be a ruling of first impression in a New Jersey federal court, Magistrate Judge Michael Shipp granted Freedman & Gersten's motion to compel discovery, giving BofA until Dec. 22 to turn over documents about the probe.

The bank also must produce documents about its procedures for handling suspicious activity and risk management and about the conduct of a bank officer also sued for allegedly assuring the law firm that a check received from a new client in Hong Kong was a good one.

But why would anyone accept a check from a foreign entity, rather than a cash wire, in this day and age? Because the scammer will, naturally, refuse to give up any of his money. He wants yours!

"我們自己搞個獎吧！(We will have our own prize!)" some high-ranking cadre must have exclaimed, pounding his fist on the table, as his note-taking staff suddenly came to life and began writing, while exclaiming, "主席說的完全對！(Excellent idea, sir!)" And thus was born -- in my imagination, but probably accurately dreamed -- the Confucius Prize, awarded just the other day to Lien Chan (連戰), a senior Taiwanese KMT pol for whom very few native Taiwanese 本省人）- as opposed to Mainlanders （外省人） -- have much love.

[That an authoritarian Chinese government nominally calling itself Communist would name its prize after the ancient philosopher, when its founders spat on his ideals, is interesting in and of itself. The popular interest in and even veneration of Confucius has returned somewhat over the past 30 years. But Confucius was not a peacemaker - he was an itinerant political consultant who sold his ideas and methods to rulers, so that they might govern with greater authority. My own prediction is that will see in China within a generation, if not earlier, peace prizes issued by the central government celebrating Chinese Buddhist ideals.]

But mainland authorities really like Lien. And so they have given him its very own peace prize. Lien's office has denied hearing of the award.

I write this only to set up for you the patent hilarity of this episode, as indicated by this quote:

However, the man chosen for the newly created honor seemed baffled by it. On Wednesday, Lien's office in Taipei said he had no plans to travel to Beijing because he knew nothing about the award. Instead, a young girl came forward to accept the award and money on his behalf. It is not known what connection if any she had with Lien.

She had no connection to Lien, of course, and gave the $15,000 right back its grantors, into whose pockets it went. Some fellows must have had a rousing night out.

UPDATE (12/10/10): At the very end of this Reuters video, you will see the little girl, about 7 years old, holding the gift-wrapped box intended to represent the prize. Look at her expression -- she is unsmiling and perplexed. They didn't prepare her at all, did they? "What's going on? Is this for me?" she seems to wonder.

The U.S. will try to intensify pressure further on China over its exchange-rate policy after a weekend meeting of the International Monetary Fund failed to produce an agreement on international currency movements.

As Mrs. Slocombe might say (in the first 15 seconds of this video), "Weak as Water!"

I have often wondered why the United States government remains as unwilling as ever to use tariffs or other similar measures to "encourage" the appreciation of the Yuan and to restrict Chinese imports into the US,

The dogma of "Free Trade" and the academic theories of global economy that float high above our daily lives remain in ascendancy. This, even though, and partly because of it, we no longer make our own clothes or shoes or the personal property that fills our homes and offices or the oil to heat these spaces or much of the vehicles we drive or the gas to run them or our much-vaunted computers or [fill in the blank]. It seems to me that Americans would rather be working manufacturing what they are to buy rather than be out of work and able to buy only that which they can not afford to make.

I still do not understand it. Why is the US so reluctant to play its power cards as ruthlessly and as intelligently as its competitors?