Make no mistake! China is still the world’s leading manufacturer but there are signs that the US is gaining ground and may even have moved up a notch or two from being the world’s fourth largest manufacturer. Where once China was an automatic leader in manufacturing, there are signs that they be displaced from their high perch by none other than the US.
Events have put China in the unenviable position of having to fight to retain its leadership in manufacturing. High tariffs, Covid-19, and increased geopolitical tensions have resulted in a mass exodus from Chinese manufacturing and may very well be the beginning of their decline and perhaps triggering the start of the downfall of the country’s manufacturing dominance.
One strong sign that the pendulum may be swinging in the other direction is when Foxconn, which builds many of Apple’s components, announced that it would move some iPad and MacBook assembly from China to Vietnam at Apple’s request. The new production lines will apparently come online in the first half of 2021, as Apple tries to alleviate the impact of the US-China trade tensions on its supply chain.
There were more indicators that China’s dominance in manufacturing may be slowing or ebbing. Factory activity expanded at the slowest pace in seven months at the start of 2021, weighed down by falling export orders amid a surging global pandemic and rising costs, a business survey indicated. The key factor is that orders have slowed, which means that companies are opting for alternate countries to do their manufacturing.
One of the main reasons that companies chose to manufacture in China was the relatively low labor costs. But in reality, Chinese wages have risen significantly over the last decade and there are several countries in Southeast Asia that can come close to matching the low Chinese labor costs. Companies have also learned that the supply lines from China may not be as reliable as was once thought. China is geographically distant from major US and European consumer markets. It has been made clear in recent times that companies that are currently, or for that matter considering, manufacturing in China face supply chain risk. Disruption in the shipment of goods across the ocean from the Far East have become more the rule than the exception, especially during Covid. What that meant was that companies might have to compromise on customer service, which is so important, if they can’t deliver the goods in a timely fashion.
Some of the nation’s largest companies have learned the hard way that manufacturing so distant from the US could be a major problem. This lesson was vividly brought home during the recent Covid-19 pandemic when many Chinese factories closed, and supply slowed. This gave pause to many companies about manufacturing so far away and instead moving manufacturing to the US. Many companies also fell victim to the theft of intellectual property by the Chinese. They found that some of their products were being imitated causing them to lose market share.
The move towards manufacturing in the US, of course, received a major boost from former President Donald J. Trump who made domestic manufacturing a cornerstone of his America First economic policy.
But moving manufacturing back to the US is not for everyone. Labor-intensive industries, such as footwear and clothing, may instead look to countries like Vietnam where labor costs are far less than the US and so far, reliability has not been a major issue. They are concerned that they reach their required profitability margins.
For the purpose of this article, it is all about manufacturing but if there is a war with China, it is much broader than manufacturing. The world has called it a “trade war” since it involves newly imposed tariffs and other restrictions. The global Covid-19 pandemic has highlighted the high risk and myopia of the trade policies of the last several decades. For example, we almost totally relied on China for our drug supply. You can almost bet that given the latest developments, critical drug and medical supply companies will move their manufacturing activities from China to the United States in greater numbers.
No one was more reliant on China than the huge box store conglomerate, Walmart. As a result of its power in the marketplace and its access to products made with cheap Chinese labor, the Arkansas-based superstore instigated the destruction of small family businesses throughout the United States. Walmart was able to offer consumers prices that no one could compete with.
Ironically, the tide has now turned. For Walmart, bringing labor-intensive jobs back to the United States in the textile, clothing, and consumer products industries is a top priority. Walmart plans to support domestic manufacturers by purchasing domestically made goods totaling US $250 billion by 2023. This is just one more example of how the US is wrestling the manufacturing away from China. That is not to say that the US will gain a monopoly over manufacturing. While some companies plan may be moving their production to the USA, others are looking to move factories to nearby countries in the region such as Vietnam and Malaysia.
Political stability is also a major factor in the business decision making process of manufacturing companies. As the epidemic continues to experience recurrences in China, unrest among the population may be an important issue to consider. Political unrest that has been currently plaguing major US cities may dissuade companies from locating facilities in the affected areas.
As far as the customer is concerned, there is no expectation of an upgrade in quality if manufacturing moves from China to a country like Vietnam. The common perception was that Chinese products were inferior to Western standards. However, that all changes when manufacturing moves to the USA. The Made in the USA label is perceived to be a quality message. The customer knows that the products were not made by cheap or forced later like in China. They have a high regard for US regulations that govern manufacturing.
The conditions are rife for a shift away from Chinese manufacturing toward a new era of Made in the USA. In that respect not much has changed during the transition from the Trump to the Biden administrations. President Joe Biden has also made manufacturing in the US a priority.
To be sure, China has not given up on the goal to become the world’s leading economic power. But the day may not be far off when China is forced to concede its manufacturing leadership to the USA. If it does happen, China will only have itself to blame as it took advantage of bad trade policies and an almost total reliance of America’s largest companies on its cheap labor.