Not long ago, executives at the Dutch multinational Royal DSM, a globe-girdling maker of nutritional supplements and high-tech materials, used to require a battery of internal studies to decide where to clinch a deal or locate a new manufacturing plant.
However, today, “we won’t even do the study,” Stephan Tanda, the managing board member with responsibility for the Americas, told me. “It’s clear it will be the United States.”
The US, he points out, has lots of cheap natural gas and a very lightly regulated labor market.
At the same time, China, where Royal DSM has some 40 plants, is losing its edge.
“It is less attractive than it used to be as a source from which to serve the world,” Tanda said.
For the last time the US was as competitive as it is now, he added, “you have to go back to before the first oil shock in the 1970s.”
Of the US$3.6 billion in acquisitions by Royal DSM since 2010, 80 percent has come to the US.
Could globalization make a U-turn?
Over the last year or two, a growing number of business analysts have been arguing that we are entering a new era of global manufacturing, with the US at center stage.
Last month, the Boston Consulting Group, following up on an earlier survey that suggested “reshoring” of factories back to the US was the new name of the game, issued a report that argued that the US had the lowest manufacturing costs among major exporters in the developed world and was nearly competitive with China.
However, before becoming overly excited about the prospects for a US industrial renaissance, it is worth looking more skeptically at the claim that globalization has run its course.
“I don’t agree that China’s moment is coming to an end,” Karl Sauvant at the Columbia Center on Sustainable Investment said. “The most important determinant of investment is market size and market growth, and China remains a big market and continues to grow at a reasonable pace.”
So what if workers in China’s coastal areas are becoming more expensive? The country will move up the value-added ladder to make more sophisticated products. Indeed, countries tend to trade more as their incomes converge, not less. Manufacturers seeking cheap labor still have plenty of places to go, like Vietnam, Bangladesh, Mexico or even China’s heavily populated hinterland, which will benefit from Beijing’s huge investments in transportation infrastructure connecting it to the coast.
There are dynamics that could put a real dent in globalization. If energy prices take off again, that will favor regional rather than global production networks. Intellectual property piracy in China might temper multinational corporations’ appetite to invest in advanced industries there.
Technologies that allow fewer workers to perform more sophisticated tasks — 3D printing, say — might encourage more production in rich countries, near consumer markets.
Already, slow growth is undermining the case for open markets that globalization rests on. Trade has slowed significantly since the Great Recession. Small-scale protectionist measures have multiplied as countries have sought to protect domestic producers.
Terrorism and political instability could slow the process further, adding another layer of cost to global production networks.
Perhaps China’s rising costs will finally provide a break to US workers who have been losing ground for two decades to a once-bottomless pool of cheap workers.
“Workers may have the opportunity to gain back lost shares of output in the decades ahead,” the Center for Economic and Policy Research’s Dean Baker said this year in a short essay that also argued that no other nation would be able to duplicate China’s successes.
Still, Richard Baldwin of the Graduate Institute of International and Development Studies in Geneva says that the convergence in incomes driven by the fast industrialization of China and some other countries like Brazil and India is unlikely to stop soon. In 1988, the share of world income held by the seven richest nations peaked at two-thirds. By 2010 it was down to half. It is, Baldwin proposes, “likely to continue to sag for decades.”
Evidence that globalization might be going into reverse is hard to find in the data. Global foreign direct investment flows remain substantially below the record US$2 trillion of 2007. However, last year they rebounded 9 percent, to US$1.45 trillion, according to UN data. More than half went to developing countries and China received US$124 billion, nearly a record and roughly 50 percent more than six years ago.
Even if the US draws a larger share of global manufacturing, lots of high-wage jobs are unlikely to follow.
Jan Svejnar of the Center on Global Economic Governance at Columbia’s School of International and Public Affairs is optimistic about US prospects.
“The most promising emerging market in the world is the United States,” he told me.
Yet any new manufacturing that develops here will be capital-intensive, he added, relying on far fewer factory workers than in the past.
For all the hope that cheap and abundant US energy or rising Chinese labor costs might drive a wave of reshoring, it is not happening yet.
James Rice and Francesco Stefanelli at the Center for Transportation and Logistics of the Massachusetts Institute of Technology looked carefully at about 50 US companies — including Apple Inc and General Electric Co — that have announced they are bringing jobs home. Most have yet to make any move.
“We don’t think that’s really what’s happening,” Rice told me.
In November last year, a man struck a woman with a steel bar and killed her outside a hospital in China’s Fujian Province. Later, he justified his actions to the police by saying that he attacked her because she was small and alone, and he was venting his anger after a dispute with a colleague. To the casual observer, it could be seen as another case of an angry man gone mad for a moment, but on closer inspection, it reflects the sad side of a society long brutalized by violent political struggles triggered by crude Leninism and Maoism. Starting
If social media interaction is any yardstick, India remained one of the top countries for Taiwan last year. President Tsai Ing-wen (蔡英文) has on several occasions expressed enthusiasm to strengthen cooperation with India, one of the 18 target nations in her administration’s New Southbound Policy. The past year was instrumental in fostering Taiwan-India ties and will be remembered for accelerated momentum in bilateral relations. However, most of it has been confined to civil society circles. Even though Taiwan launched its southbound policy in 2016, the potential of Taiwan-India engagement remains underutilized. It is crucial to identify what is obstructing greater momentum
In terms of the economic outlook for the semiconductor industry, Taiwan has outperformed the rest of the world for three consecutive years. This is quite rare. In addition, Taiwan has been playing an important role in the US-China technology dispute, and both want Taiwan on their side, reflecting the remaking of the nation’s semiconductor industry. Under the leadership of — above all — Taiwan Semiconductor Manufacturing Co (TSMC), the industry as a whole has shifted from a focus on capacity to a focus on quality, as companies now have to be able to provide integration of hardware and software, as well as
The US last week took action to remove most of the diplomatic red tape around US-Taiwan relations. While there have been adjustments in State Department “Guidelines on Relations with Taiwan” and other guidance before, no administration has ever so thoroughly dispensed with them. It is a step in the right direction. Of course, when there is a policy of formally recognizing one government (the People’s Republic of China or PRC) and not another (the Republic of China or ROC), officials from the top of government down need a systematic way of operationalizing the distinction. They cannot just make it up as