Perhaps you've seen the advertisement for Las Vegas that concludes "What happens in Vegas stays in Vegas." Based on the economic explosion in China and the increasing trade deficit between the United States and China, some wish that the results of Chinese development would stay in China. But it isn't happening.

As a child, I spent many hours digging holes in the backyard, imagining that if I worked real hard I'd be able to tunnel my way to China. Now I'm afraid that such a tunnel would widen the opening of this Pandora's box, which is threatening to put more burdens on the U.S. economy and shift more jobs and production to the Asian powerhouse.

And if you believe that what happens in China does not affect your HVACR business, think again. I can understand that running your business and putting out fires are your main focuses. They should be; that's how you make money for yourself, your family, and your employees.

But I also believe it is important to know some of the things that have an outside influence on your business, even though they may be thousands of miles away, in another culture, and out of your control.

Cost Of Doing Business

Rising prices for raw materials and energy have had a profound impact on small businesses in the past year. While business owners are used to seeing gradual cost increases due to inflation, the spikes in fuel costs and steel in the past year have adversely affected the bottom line for many businesses. Add these cost increases to the mushrooming cost of insurance, and small businesses are getting slammed from all sides.

Insurance costs can be controlled to some degree by shopping around, raising deductibles, cutting back benefits, or sharing premiums. That isn't to say that a magic elixir can make high insurance costs go away, but business owners have some wiggle room to limit the costs.

There is no wiggle room when dealing with the impact of China on our economy.

For example, a study by the RBC Financial Group stated that China is the most important country in the world for steel production. China cannot keep up with its own demand for steel, and as long as demand for steel is high, there will be no pressure for steel manufacturers to lower prices. That means it's likely that the equipment you sell, comprised of many steel components, will continue to rise at an uncomfortable rate.

Oil prices continue to be affected by worldwide demand, in part because of China's insatiable appetite for oil.

According to University of Pennsylvania Wharton School professor Marshall E. Blume, it is unlikely that China's demand for oil will level off. "I see nothing stopping their economic growth because, basically, where are the bottlenecks?" he asked.

No Work, No Workers

As the U.S.-China trade deficit widens, more states are losing businesses, and displaced workers are finding it harder to find good-paying jobs. Between 1989 and 2003, the trade deficit increased twenty-fold, rising from $6.2 billion to $124 billion in 2003.

In a report by the Economic Policy Institute, it was noted that during that same 14-year period there was a loss of 1.5 million jobs to lower-wage Chinese competition. Not only was the United States importing more cheap goods from China, the country was - in effect - exporting over a million jobs to them. The report showed that during the time period, California lost over 200,000 jobs and Texas lost over 100,000 jobs.

These are people who used to buy your furnaces and condensing units - and maybe some add-ons like humidifiers and electronic air cleaners. These are also people who are moving out of your community because they can't find work.

My conclusion? Keep doing what you are doing and have a busy summer. But don't encourage the kids to dig any holes in the backyard.

John R. Hall is business management editor. He can be reached at 734-464-1970, 248-786-1390 (fax), or

Publication date: 05/23/2005