August 2023: China Manufacturing Dwindles As U.S. Gains
August 2023 E-News: China Manufacturing Dwindles As U.S. Gains
Upcoming 1H2023 data shows U.S. reshoring and FDI job announcements are exceeding the impressive pace of 2022 with upwards of 390k jobs announced/year. In contrast to the upward trend in job announcements and construction investment in the U.S., China is seeing a parallel downward trend in economic activity, trade and openness, illustrating a systemic U.S. shift away from globalization in general and China in particular. The articles below cover the details and breadth of these developments. We continue to focus on China because reshoring from China has the optimal combination of size ($537 billion 2022 exports to the U.S.); vulnerability (25% Section 301 tariffs); and national and corporate urgency (ongoing geopolitical risks).
A new foreign policy law provides a clearer legal premise for China to take “countermeasures” against Western actions it deems as threatening its national and economic security, adding to the already heightened and murky risks of doing business in China. From Washington, the National Counterintelligence and Security Center is warning businesses of Beijing’s increasing power over, and control of, U.S. companies with operations in China. See also the CNBC documentary China's Corporate Spy War.
There are not enough laborers and too many highly educated workers with no jobs. RI comment: In the U.S. about 30% of university degree holders are in jobs that do not require a degree while we have shortages of manufacturing workforce.
“China’s economic strategy aims to make it less dependent on other countries while making international production chains more dependent on China.” Recognizing that asymmetry is step one. Step two is devising a plan to counter it. RI comment: Our Competitiveness Toolkit will counter China and strengthen the U.S.
RI comment: The title ought to be, Much of What We Knew About the Global Economy Was NeverTrue. The NYT author understates how wrong her publication and most experts have been. She and most commentators refer to globalization as providing efficiency. This description is not correct and never was. Globalization reduced costs. Supplying the U.S. from Asia actually increased: energy/fuel usage; effort since productivity was lower; inventories; waste due to overstocking at retail; pollution, etc. If measured correctly, globalization often did not even reduce cost. Companies that source based on Total Cost of Ownership (TCO) find that 20 to 30% of what they import can be sourced here with equal or greater profitability and much lower risk. The U.S. and companies have made excellent progress, increasing the number of reshoring jobs announced from 6,000/year in 2010 to a projected 390k/year in 2023.
“Methanol is triple the price of very low sulfur fuel oil, said Hapag-Lloyd. Consultancy Drewry estimated that a switch to “green” methanol — methanol produced from biomass or by other means to reach carbon neutrality on a well-to-wake basis — would increase fuel costs by 350%”
Small and mid-sized businesses are looking to nearshore their supply chains to increase efficiency and improve sustainability, according to a survey by Capterra. RI comment: In this survey “nearshoring” includes bringing work to a near shore and to the U.S.
More Reshoring News
Hiking and fishing with other Camp Kotok guests …for those who think Harry only works!
The annual rate of U.S. inflation — the increase in the Consumer Price Index —is at 3% from June 2022 to June 2023. It’s the lowest inflation we’ve seen since the spring of 2021. 8.7%, 6.4% and 4.8% are the latest annual inflation rates for the U.K., Germany and India, respectively. The U.S. has now gotten ahead of much of the world in fighting inflation. Combined with the USD down 8% from its 2022 high, this makes us more competitive.
Government employers are looking “at the broader phenomenon of what supporters call “skills-based” hiring — essentially deciding that work experience or life experience can substitute for a diploma — for government jobs,” a trend that will further expand opportunities for vocational workers.
Automation equipment companies are expected to be the other big winner from a North American manufacturing revival as their technologies are what make the economics of such a shift work, but growth in robot installations in the U.S. in 2021 was a fraction of the pace seen in China and also trailed Japan and the combined European market, according to the International Federation of Robotics.
The problem is rooted in America's overreliance on foreign suppliers, Tinglong Dai and Christopher S. Tang wrote, "Either we take steps to phase out our reliance on foreign manufacturers, or the FDA needs to step up its quality inspections." Nearly 3,000 foreign factories provide most of America's pharmaceuticals, but the FDA inspected just 6% of them in 2022. That means crises like the cancer drug shortage are always lurking. "This is a glaring failure hidden in plain sight." RI comment: The risk the U.S. faces along with the loss of manufacturing jobs is especially galling given that the U.S. price for pharmaceuticals is twice the price of other developed countries. Americans pay for the worldwide industry’s research and profit and then do not get the manufacturing jobs and dependable supply.
Please consider attending this event, which will be held at the Huntington Convention Center of Cleveland from October 30 to November 2 and will include 9 keynote sessions, 10+ workshops, 30+ practitioner presentations, 25+ best-practice tours, and countless opportunities to network.
“AME leads the fight for lean in the U.S. and has been very supportive of the Reshoring Initiative. Lean is key to being competitive enough to reshore. I encourage you to attend.” – Harry Moser