"Real economy" and "manufacturing" have now become household terms, though the very idea of "global manufacturing" remains a concept that many do not understand completely.
According to the global manufacturing competitiveness rankings, Germany ranks the first, China second, South Korea third, and the United States fourth. Germany too ranks the first in global word-of-mouth ranking, followed by Switzerland and the European Union in second and third place respectively. The tenth place is the United States. China's manufacturing industry, on the other hand, which is mainly based on OEM, has no chance to appear in this list at all. How then, is the performance of China's manufacturing industry? According to data released by the United Nations Statistics Division, China accounted for 28% of global manufacturing output in 2018, more than 10 percentage points ahead of the United States. The U.S. was the world's largest manufacturing nation, until 2010 when China overtook it. In 2018, the added value of China's manufacturing industry was nearly USD 4 trillion, accounting for nearly 30% of the country's total economic output. Today, the U.S. economy is far less reliant on manufacturing. In 2018, manufacturing accounted for a mere 11% of the GDP of the U.S., the world's largest economy.
Now, when it comes to "global manufacturing", most people would see the "Made in China" label to be all too normal, while "Made in U.S.A" an anomaly.
Such an impression, of course, is common, but it is not exactly accurate. In fact, what the above-mentioned data shows and reveals is only a microcosm of the global manufacturing industry, an incomplete aspect at that. Because the global manufacturing industry is undergoing structural changes, the trends are changing. The manufacturing industry in the U.S. may very well re-emerge and dominate the global manufacturing industry once again.
When I first started to write this article, I admitted that the resurgence of manufacturing in the U.S. would seem unlikely, at least for now. Countries that benefitted from globalization after World War II, like Germany, Japan, and China, are still reluctant to accept the possibility of the revival of American manufacturing. Such a scenario, granted, would simply be a nightmare for these countries, as it could greatly reduce the space of their interest. Therefore, more often than not, this view is rejected by many as an impossibility.
The United States is indeed a country with extremely high labor costs. Due to demographic reasons such as aging, it is difficult for American manufacturers to find enough workers, or they cannot afford to provide wages that are competitive with other service industries. In addition, the main part of the industry is in the hands of capital companies and multinational companies. From the perspective of the stock market and capital appreciation, they can basically ignore the meager profits of the manufacturing industry, especially the capital market. The manufacturing industry, deemed to be outmoded, would usually not attract the attention of investors. The current share price gap between Ford Motor Company and Tesla is a telling sign of this. By and large, the manufacturing industry is simply not within the scope of many economists' vision. It would appear that only fools would care about the existence and development of such an industry.
That said, there are certain signs, while seemingly clichés, are those one should pay attention to yet they are so often being ignored. For instance, China's traditional manufacturing industries such as Fuyao Glass and some vehicle assembly companies are relocating to the United States. This should really be the food of thought for those who insist the impossibility of the revival of American manufacturing industry.
The re-emergence of American manufacturing, especially high-end manufacturing, is entirely possible.
First of all, global inflation is a main contributing factor. This is something that I have mentioned as early as the end of the last century. Inflation will promote the reorganization, adjustment, and layout of the industry. Industries and enterprises that were unprofitable in the past will become profitable again because of inflation, where nominal prices will rise sharply. As a matter of fact, not only high-end manufacturing industry will benefit from this, low-end ones will also gain profit as well. We have seen that the prices of various products around the world have risen recently, and the price hike on the supply side is rather apparent.
Secondly, technology can boost the manufacturing industry, by injecting new vitality into old commodities and products, thereby promoting the strength of the industry. For example, automobile manufacturing is a conventional industry, yet companies like Tesla are taking the lead in the use of technology. Due to the explosive development of vehicle-machine systems, information technology has now been integrated with the traditional automobile manufacturing industry and formed the foundation for the new generation of smart vehicles. Even Apple has begun to place special emphasis on the smart car-tech, as announced by the tech giant at the Worldwide Developers Conference recently. Traditional car products now have a vast new market, as the new generation of such products replaces the older ones.
Thirdly, the price reduction of robots helps to solve the human resource problem to a certain extent. Robots are not a new phenomenon, but with the substantial increase in the price of human resources, the use of robots has become relatively cheaper. In the U.S., orders for workplace robots increased by 40% in the first three months of 2022, as companies tapped automation to address persistent labor shortages while cutting costs as inflation continued to hover at 40-year highs. According to the Association for Advancing Automation (A3), about 9,000 robots were sold in the U.S. in the first quarter, valued at about USD 544 million, compared with just over 6,400 robots worth about USD 346 million in the same period last year. In its Future of Jobs Report 2020, the World Economic Forum predicts that by 2025, humans and machines will spend nearly equal amounts of time at work. It is estimated that 85 million jobs will be displaced by automation and technological advances, while 97 million new jobs may emerge, better suited to the new division of labor between humans, machines, and algorithms.
Fourthly, geopolitics is the biggest risk exposure of all multinational companies. The war in Ukraine has left many multinational companies in a very difficult situation that they have left the Russian market at any cost, with losses of hundreds of millions, or even tens of billions of dollars. All this has made multinational companies re-examine the industrial theory that they previously firmly believed in, and adjust the industrial layout significantly. In this regard, global multinational corporations have completely lost their patience, and it is impossible for them to continue waiting for the world to slowly return to the peace that it once enjoyed.
Lastly, war, nationalism, and global competition have made global isolationism increase day by day. Since the risks in the world market are high, right-wing politics vigorously promote the realization of various conservative production methods through the re-integration of conservatism with technological innovation and production means. This is with the purpose of forming a new kind of economic success.
In the era of globalization after World War II, the global supply chain layout has formed a polarization between high-end and low-end industries. High-end manufacturing is controlled by developed countries, while the low-end ones have generated opportunities for developing countries to enjoy prosperity. Now, due to global risk adjustment and inflation, the profit of low-end manufacturing is no longer low, while likewise, that of the high-end is no longer high. This has resulted in a new wave of industrial adjustment. The shuffling of geopolitics also has a great impact. South America and the wider world will undertake low-end manufacturing, and thus have more chances for development and prosperity than before. Meanwhile, high-end manufacturing will be more concentrated In North America, and the further improvement of manufacturing concentration will form a manufacturing high ground just like what happened before World War II.
With all these factors considered, it is not impossible for the revitalization of the American manufacturing industry. This might not happen overnight, but it is definitely a possibility. In such an issue, it would be crucial to reflect on the huge impact that it might bring.
The products produced by global manufacturing in the future will not be those that we see or think of today. Instead, they will be a whole new generation of manufacturing products highly integrated with AI technology. For example, self-driving will no longer be seen only on Tesla's vehicles. Many other traditional automobile products will be embedded with AI technology and gradually have their own smart-driving devices, whether they run on oil or electricity. The personalization of electric planes too might even replace the cars that run on the ground today, and space travel will no longer be an unfeasible fantasy. This new generation of manufacturing products will make some conservative-minded countries fall into "technological poverty" once again, and lag behind the intergenerational renewal.
Noteworthily, the structure and layout of the world's manufacturing industry in the future will not be the same as today. The derivation and distribution of low-end manufacturing will not be carried out in a spontaneous way. Not only manufacturing costs and transportation conditions will be considered, but various risk factors will be the deciding factors as well.
Investment in low-end manufacturing will also posit higher requirements. For multinational companies and their supply chains, the urgent need for geopolitical protection is far stronger than the desire to pursue lower costs, because the return on capital brought by technological innovation has far exceeded cost savings. The focus then, will be on ensuring things can go on smoothly.
The world is changing. Soon, increasing in number of the "Made in U.S.A" products will no longer be a surprise. This is, after all, a normal manufacturing adjustment. It is already happening right now, and it will bound to be more obvious in the future.
Final analysis conclusion:
The logic of global manufacturing layout in the era of globalization is now changing, all due to the shifts in various political, economic, and technological factors. China's status as the "world's factory" is not necessarily sustainable in the long term, and there is the possibility that the United States will revitalize its manufacturing industry under this new trend.
