Re-Shoring From China to the U. S. in Manufacturing – Because in Economics Nothing Stays the Same

A Small But Hopeful Trend – And One Thing to Look Out For

Re-shoring is the name that has been given to the business actions when manufacturers shift operations from China back to the United States, or when they expand in the United States rather than expanding off shore in China and other countries.  With the Chinese currency appreciating (slowly) and Chinese costs appreciating (rapidly), the U. S. is looking better as a domicile for locating a manufacturing plant.

The record for manufacturing employment in the U. S.  has not looked good, for many decades and manufacturing as a percent of total U. S. GDP has been on a long term decline.  This is not likely to change.  However, the deterioration may have stopped (it could only get so low) and the trend may be to increase rather than decrease manufacturing as a part of the U. S. economy.

Boston Consulting’s study says that in the seven industries, which together accounted for 63 per cent of US imports from China totalling $364bn last year, 600,000-800,000 jobs are likely to be created by 2020 through “re-shoring” production activity.

In terms of the impact on unemployment, there is this

According to the consultancy, the extra manufacturing activity as a result of re-shoring – plus other jobs triggered elsewhere in the economy – could cut the US unemployment rate by 1.5-2 percentage points by 2020 from its current 9.1 per cent.

Now the reason something like this happens is that economics is not static.  If markets are allowed to freely operate, economic advantages in one time frame will give way to economic disadvantages in future time frames.  Japan is the best recent example of this, in the 1980’s and early 1990’s Japan was going to rule the manufacturing world.  Now it is just another economy slipping down the rankings.

The bad news in all of this is that even if those new jobs are to be based in the U. S., they are not likely to be based in U. S. owned companies.  The ownership and control of this new manufacturing capacity is likely to be primarily Chinese.  Why?  Because for the last two decades the U. S. has been borrowing money from China to buy goods from China and to finance a government deficit.  Now China has trillions in foreign currency reserves, and it will continue to use the money to aggressively purchase U. S. companies or to support Chinese controlled companies that are investing in the U. S.

This is not good, but this is the inevitable result of a debtor nation.  Sooner or later it must sell off its assets to pay its debts.  Look for the “sooner” part coming soon to a neighborhood near  you.