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.
‘RESHORING’
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.
CHANGING FACTORS
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.”
MIXED FEELINGS
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.
A gap appears to be emerging between Washington’s foreign policy elites and the broader American public on how the United States should respond to China’s rise. From my vantage working at a think tank in Washington, DC, and through regular travel around the United States, I increasingly experience two distinct discussions. This divergence — between America’s elite hawkishness and public caution — may become one of the least appreciated and most consequential external factors influencing Taiwan’s security environment in the years ahead. Within the American policy community, the dominant view of China has grown unmistakably tough. Many members of Congress, as
After declaring Iran’s military “gone,” US President Donald Trump appealed to the UK, France, Japan and South Korea — as well as China, Iran’s strategic partner — to send minesweepers and naval forces to reopen the Strait of Hormuz. When allies balked, the request turned into a warning: NATO would face “a very bad” future if it refused. The prevailing wisdom is that Trump faces a credibility problem: having spent years insulting allies, he finds they would not rally when he needs them. That is true, but superficial, as though a structural collapse could be caused by wounded feelings. Something
Former Taipei mayor and Taiwan People’s Party (TPP) founding chairman Ko Wen-je (柯文哲) was sentenced to 17 years in prison on Thursday, making headlines across major media. However, another case linked to the TPP — the indictment of Chinese immigrant Xu Chunying (徐春鶯) for alleged violations of the Anti-Infiltration Act (反滲透法) on Tuesday — has also stirred up heated discussions. Born in Shanghai, Xu became a resident of Taiwan through marriage in 1993. Currently the director of the Taiwan New Immigrant Development Association, she was elected to serve as legislator-at-large for the TPP in 2023, but was later charged with involvement
Out of 64 participating universities in this year’s Stars Program — through which schools directly recommend their top students to universities for admission — only 19 filled their admissions quotas. There were 922 vacancies, down more than 200 from last year; top universities had 37 unfilled places, 40 fewer than last year. The original purpose of the Stars Program was to expand admissions to a wider range of students. However, certain departments at elite universities that failed to meet their admissions quotas are not improving. Vacancies at top universities are linked to students’ program preferences on their applications, but inappropriate admission
RSS