Sun, Sep 21, 2014 - Page 9 News List

With manufacturing returning to US, is globalization in retreat?

By Eduardo Porter  /  NY Times News Service

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.

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