When labour costs get too high in a country, the best solution may be to send jobs to another country. Over the past decade, manufacturers from all over the world started relocating to China, an oasis of exceedingly cheap workers.
But as far as the US is concerned, this is slowly changing following threats by President Donald Trump of imposing a 45% punitive tariff on imports from China.
There is a new twist now to offshoring with an inverse trend gaining traction: China losing jobs and the US gaining from China’s loss. The same market forces that pushed American jobs overseas are now bringing some of those jobs back. Thanks to high costs of labour, resources, energy and transportation in China, offshore production presents less of a discount than it once did.
China’s “glass king”, Cao Dewang, chairman of Fuyao Glass, told Beijing News that even though wages for a factory employee in the US were about eight times higher than for those in China, the US remained an attractive place to invest. He explained, manufacturers in China pay about 35% more in taxes than their counterparts in the US and value-added tax has become the biggest burden for companies. Cao has decided to invest US$1 billion in the US, which includes taking over a former General Motors plant in Dayton, Ohio.
Willy Lin, deputy chairman of the Federation of Hong Kong Industries, commenting on the glass manufacturers plan to move to the US: “Glass manufacturing can be highly automated and thus labour cost per unit is relatively low. Product cycle is long and so by automation one can drive down the price to a very competitive level.”
According to analysts, China’s economy is becoming strictly subject to the whims of state enterprises, forcing many private businesses to move abroad. Many Chinese manufacturers decided to make a move to the US even before the election of Trump. Last year, Chinese companies invested over $20 billion in the US from a practically non-existent total investment back in 2006, reported The Wall Street Journal.
Last October, China garment manufacturer Tianyuan Garments, which makes clothes for brands such as Adidas, Reebok and Armani, paid US$20 million for a defunct 100,000-sq ft metal fabrications plant in Little Rock, Arkansas. Tianyuan plans to employ 400 Americans to run the facility, which will open in late 2017. For its investment, cotton-producing state Arkansas offered Tianyuan a US$1 million infrastructure grant, US$500,000 as support for training staff and a 3.9% annual tax rebate amounting to about US$1.6 million annually.
Earlier in April, Chinese Paper products manufacturer Sun Paper Industry expressed its interest in Arkansas. The company plans to invest more than US$1 billion to build a new bio-products mill that would create around 250 local jobs.
The offshoring trend is changing, but it is still in its infancy. It may take some time before a flood of Chinese and other foreign, including American, companies relocate to the US.