US manufacturing comeback threatens manufacturing reshuffle

By Ni Xiaolin
0 CommentsPrint E-mail, May 17, 2011
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Despite the growing role played by the service sector, manufacturing remains the core of national competition and the engine of the world economy.

Predictions of a "US manufacturing comeback" have sprung up like weeds recently in the headlines of papers and reports by US research and consulting firms. According to a report issued recently by the Boston Consulting Group, US multinational manufacture will reinvest at home over the next few years as labor costs in Asia rise. However, the report also made clear that the average wage of a manufacturing worker in the U.S. is still 10 times more than that of a Chinese. The continued appreciation of the RMB will drive up labor costs in China further, making US manufacturing more competitive, the report explains.

Over the past 20 years of globalization, the U.S. has gradually transferred its production capacity overseas to places such as China, India and Southeast Asia. But according to the Boston Consulting Group report, a comeback of US factories must involve a reshuffling of the global manufacturing sector.

The withdrawal of some US multinational companies' production facilities may be an undisputed fact. If so, the final consumers are far beyond the United States itself. The era of global production and American consumption is becoming history.

The division of labor in the global manufacturing industry is a historical artifact caused by labor cost disparities among nations that have led developed countries to move factories to places where manpower is cheapest, not simply transfer production bases to foreign countries. In the past, the production and consumption markets were quite distinct from one another. Underdeveloped countries produced, and developed countries consumed. This is now changing.

As for whether the wage gap between underdeveloped and developed countries will narrow rapidly, we ought to consider two conditions. First, labor costs in Asia will increase quickly. Second, developed countries have sufficient labor to join the manufacturing industry. It is doubtful that the U.S. can take on the heavy responsibility of being a manufacturing powerhouse with structural unemployment problems.

Because of the last reshuffling of the global manufacturing industry, the economy of some underdeveloped countries has fundamentally changed, as can be seen in the BRIC countries.

The balance on the scales is always the rule of global economic development. The U.S. would still hold its position at the top of the manufacturing industry if it moved production back to domestic factories, but it must still grapple with global challenges to its manufacturing competitiveness. Whether moving production back to the U.S. is feasible or not remains unknown.

The US manufacturing industry has shown signs of a revival, but this is obviously an aftereffect of the financial crisis, not a structural shift based on global economic fundamentals.

I believe that, as the formula to rebalance the global economy still contains lots of unknowns, the trend of globalization will be "S" shaped. The path will be much more twisted than before. After the financial crisis, international trade frictions are escalating, and barriers to globalization are solid. The areas of conflict have expanded from the economy to education and more.

Thus, I believe that, given the current layout of global manufacturing, a U.S. comeback would lead to an intensive reshuffle.

The author was former deputy director of Xinhua Beijing branch, senior correspondent of Xinhua and engaged in financial reporting.

Opinion articles reflect the views of their authors, not necessarily those of

(This post was first published in Chinese and translated by An Wei.)


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