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With China holding a massive chunk of our national debt and the undervalued Yuan pissing off international traders on our side of the big pond, it seems that we’re stuck between a rock and a hard place.

Setting up tougher tariffs on China’s exports might not be such a good idea–after all, they can recoup those losses easily–our federal bank happens to owe them a lot of money.

Fortunately, particular American material, chemical, and small product manufacturers are temporarily getting a boost without depending on state-imposed tariffs to make their goods more competitive: in the last few months, their Chinese counterparts have been under attack for unsafe products ranging anywhere from pet food to toothpaste to children’s toys.

My generation grew up hearing about the death of Detroit due to booming Japanese vehicle imports, and for good reason–with American auto makers cutting cost-per-vehicle expenses in their manufacturing processes, Japanese auto companies in the early 90’s implemented tougher inspection processes, greater attention to detail, and the product-perfectionist attitude that’s necessary to break (and break BIG) into a new market.

When the Big Three started their march to Washington with an angry plea to save their companies from the superior products arriving from overseas, they failed to understand rule 1 of capitalism: the market decides.

When you decide to save $1.50 a vehicle by NOT spraying that second coat of anti-rust compound, you’re not really saving money–you’re shitting on your customer. When they find their beloved Ford, GM, or Chrysler starting to rust at the runners with only 3 years and 50,000 miles on the car, your losses on the market will dwarf the gains made by those brilliant American penny-pinching tactics on the assembly line.

Well, now it’s China’s turn. In small product manufacturing, quality isn’t always important–so on a child’s toy you can get away with paint that wears off or toy truck axles that bend. When little Johnny is playing with his novelty plastic glider, he doesn’t mind that the color is faded or that the die stamp was a little bit off. Children’s toys–at the dollar store or the supermarket checkout line–aren’t built to last, and parents looking for a quick pacifier aren’t going to question their hefty investment of $1.99 on a bag of injection molded toy soldiers.

If those soldiers contain lead, however, the term “quality” has just crossed the line from preference to necessity. Low quality can and will be tolerated by unsavvy consumers, but safety issues change the problem from annoyance to danger.

In the last twenty years, “grow grow grow” has been the apparent mantra of the Chinese manufacturing body, and like state of American heavy industry at the turn of the 20th century, fast growth comes at the expense of unsafe working conditions and unsafe products.

Add health products like toothpaste, agricultural products like pet food, and sensitive consumer products like baby bibs into the mix, and you have a volatile response on your hands. Why issue tariffs when the end-consumers have perfectly good reason to reject the products wholesale?

China is a tough economy, and make no mistake–these issues are far from a fatal (or even critical) blow. Manufacturers with a strong tie to large American distributors are now bringing in independent consultants and product-safety firms, sometimes on the request of their clients.

Also, we read an eerie entry yesterday in the New York Times saying that one of the men behind the Mattel recall was killed in “an apparent suicide,” but that few details were known. In a similar story just a few months ago involving Chinese prescription drugs (which are not exported to the west,) a man accused of taking kickbacks from the Sino-pharmas committed suicide.

If you want to play Capitalist with the rest of us, making your consumers (or their fuzzy pets) sick is a sure path to losing customers and contracts. You can sell us crap (after all, we’re Americans; we love to save a few pennies,) but hurting us in the process isn’t really a good market strategy. We’re pretty dumb, but we’re not that dumb.

The Chinese are capable of rapid adaptation. While Chinese manufacturers should be (and are being) momentarily shunned by the west, we should also see this as a sign a maturation in our healthy competition across the Pacific.

With the explosion of the Chinese economy (11% growth in the last QUARTER, mind you) and the unstopping steam engine of globalization puffing along, this is no Waterloo. It’s more of another rung that the Chinese are stepping up to on the ladder to top dog.

Let’s hope that as they continue to mature and produce higher-quality products at exceedingly higher volumes, our remaining American manufacturers keep an eye on their progress and remember–above all else–that the market decides.

Staying competitive might become a little bit harder once the Chinese have had their own industrial reforms in safety and quality control. A copy of “The Jungle” in Mandarin might not be necessary–losses from unsafe products and rewards for a consistent safety record may be lesson enough.

After all, they’re in it for the money, even in the PRC. Welcome to capitalism.