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.
As a person raised in a family that revered the teachings of Confucius (孔子) and Mencius (孟子), I believe that both sages would agree with Hong Kong students that people-based politics is the only legitimate way to govern China, including Hong Kong. More than two millennia ago, Confucius insisted that a leader’s first loyalty is to his people — they are water to the leader’s ship. Confucius said that the water could let the ship float only if it sailed in accordance with the will of the water. If the ship sailed against the will of the water, the ship would sink. Two
South China Sea exercises in July by two United States Navy nuclear-powered aircraft carriers reminds that Taiwan’s history since mid-1950, and as a free nation, is intertwined with that of the aircraft carrier. Eventually Taiwan will host aircraft carriers, either those built under its democratic government or those imposed on its territory by the Chinese Communist Party (CCP) and its People’s Liberation Army Navy (PLAN). By September 1944, a lack of sufficient carrier airpower and land-based airpower persuaded US Army and Navy leaders to forgo an invasion to wrest Taiwan from Japanese control, thereby sparing Taiwanese considerable wartime destruction. But two
This year, India and Taiwan can look back on 25 years of so-called unofficial ties. This provides an occasion to ponder over how they can deepen collaboration and strengthen their relations. This reflection must be free from excitement and agitation caused by the ongoing China-US great power jostling as well as China’s aggressive actions against many of its neighbors, including India. It must be based on long-term trends in bilateral engagement. To begin with, India and Taiwan, thus far, have had relations constituted by various activities, but what needs to be thought about now is whether they can transform their ties
The US Navy’s aircraft carrier battle groups are the most dramatic symbol of Washington’s military and geopolitical power. They were critical to winning World War II in the Pacific and have since been deployed in the Indo-Pacific region to communicate resolve against potential adversaries of the US. The presence or absence of the US Seventh Fleet — the configuration of US Navy ships and aircraft in the Indo-Pacific region built around the carriers — generally determines whether war or peace prevails in the region. In the immediate post-war period, Washington’s strategic planners in the administration of then-US president Harry Truman shockingly