skip to Main Content
Why – Exactly – Are So Many Of The World’s Goods Manufactured In China?

Why – Exactly – Are So Many of the World’s Goods Manufactured in China?

Why – Exactly – Are So Many of the World’s Goods Manufactured in China?

With the current geopolitical challenges between China and the United States, as well as the ongoing supply chain issues affecting manufacturers and consumers, there’s been much talk about moving global manufacturing out of China . But despite the talk, U.S.-China trade reached a record level in 2022 , with no signs of any slowing in the near future. While former U.S. secretary of state Henry Kissinger is credited with opening China to the West under then-President Richard Nixon, it was not until 2000 that the U.S. granted China permanent normal trade relations – a legal designation that allows foreign nations be granted most favored nation status, and hence be treated similarly to other members of the World Trade Organization. This move reinforced China’s growing role in global trade. Since then, much of the world’s manufacturing base has migrated to China , attracted by low-cost labor and favorable policies from the Chinese government. These policies include massive investments in infrastructure and trade capacity. Tariffs & trade wars The spectacular economic rise of China has created geo-political challenges – from spy balloons to unfair trade practices and accusations of intellectual property infringement and theft – which have has resulted in an active trade war between the U.S. and China . In 2018, Donald Trump invoked Section 301 of the Trade Act of 1974 to apply tariffs on billions of dollars on Chinese goods when he was president. As a result, pressure intensified on global companies to relocate their manufacturing to lower-cost destinations across Asia, such as Vietnam, Bangladesh, and India. After the COVID-19 pandemic caused chaos in global supply chains , there were calls to bring manufacturing back closer to home either by “nearshoring” – building factories in Mexico for the U.S. market, for example – or reshoring back to home countries. Despite these significant financial and political pressures, many companies are still not moving more of their production out of China. Why not? As it turns out, China has mastered the craft of manufacturing. As part of our ongoing research into global competitiveness, we had the opportunity to review confidential data from some manufacturing firms. This data indicated that even though labor costs associated with production are significantly lower in other markets, such as Bangladesh, so is productivity. Chinese laborers are both more expensive and more productive than labor in other emerging economies in Asia. Both of these factors must be taken into account when making the decision to relocate production out of China. But this is only part of the story. The reality of manufacturing Joseph Eiger, an executive in a global sourcing company that manufactures consumer products, sheds light on how the world of manufacturing operates. Consider the case of making a baseball cap, for example. Some baseball caps are very basic, while others are more complicated and involve embroidery and more expensive fabrics. As Eiger put it: “While producing baseball caps is not the same as producing a cell phone, it is still pretty complex.” China’s manufacturing industry has access to a high level of agglomeration economies – or ecosystem. Take the example of producing a sweatshirt. It is not just about the textiles needed to cut and sew into a sweatshirt. It is also about the trims, dyes, zippers, cords, and other necessary pieces that may be required for assembling the product, Eiger explained. China has deployed a strategy that ensures that the entire manufacturing supply chain is located there and has mastered each step of the process. China even imports and processes much of the world’s wool and cotton , including a significant amount of U.S.-grown cotton that comprises approximately 35 percent of the world total. This cotton is then processed, made into fabric, dyed, and sewn into clothing and other products. They are then exported globally, including back to the U.S. as finished goods. The entire textile ecosystem for production is located in China – and this is not just the case for fabric, it is also the case for all of the components. If a retailer in the U.S. or Canada, for instance, wants to move the production of the textiles it sells out of China, it would have to move the entire ecosystem with it. Either that, or they would need to source the inputs needed from China into other countries like Bangladesh, where final production would take place. It turns out that the costs associated with leaving China are simply too high. As long as the ecosystem for manufactured goods remains […]

Click here to view original web page at Why – Exactly – Are So Many of the World’s Goods Manufactured in China?

Daisie Hobson

Daisie Hobson is a Director at the Reshoring Institute and an engineer with many years of experience in manufacturing and project management.

Leave a Reply

Back To Top