Growing disillusionment with China, heightened by misgivings over Beijing’s initial handling of the coronavirus pandemic, presents the U.S. with the opportunity to launch a drive to bring manufacturing back home. The time is certainly ripe for a reshoring drive.
The changing cost equation in China is one reason. With productivity growth stalled and the urban migration of the rural populace slackening even before the pandemic, manufacturing profit margins are under pressure with factories having to pay higher wages to fill positions.
The steady rise in labor costs, compounded by the tariffs U.S. President Donald Trump has imposed on Chinese imports, has all but eroded the competitive advantage of such goods. In addition, a rise in the cost of capital in China is inevitable in the coming years because Beijing yet again needs to clean up a mountain of bad debt but this time that will have to take place in the context of much slower growth.
With export income drying up, using the banking system as an ATM will soon no longer be a viable option for the government. As a result, companies will find it harder to sustain the economies of scale which previously made China such a powerful export platform.
Another factor in reshoring’s favor is…
Diana Choyleva is chief economist of Enodo Economics, a macroeconomic and political forecasting company in London.