The challenges of decoupling manufacturing from China

Back in the late 1980s, the relocation of American manufacturing to China, labelled the 'factory of the world' became the latest trend in strategic management. As environmental laws tightened around industry, governments implicitly encouraged American industry to pack up and leave.

From the corporation perspective, relocating manufacturing to China made good sense. This led to bumper profits of corporate America, due to the dramatic cut in manufacturing overheads. Additional flexibility in production allowed corporations to focus almost totally upon marketing, sales and logistical operations.

As corporation profits soared, the towns and cities that once supported these corporation's factories became desolate wastelands. America is full of 'almost' ghost-towns that have become ghettos for the unemployed. Total micro-economic eco-systems were destroyed, that no longer shared in the well-being of once manufacturing-based corporations.

However, on the aggregate US front, consumers benefitted from the super-low prices of garments, footwear, home appliances, and other miscellaneous merchandise.

For China, the inflow of US manufacturing was a bonanza. New industrial areas grew up out of nowhere with adjoining towns to supply a workforce. These industries introduced to China new technologies and processes, allowing a cascade of part manufacturing suppliers to grow up around them. For example, a consumer manufacturing plant would attract packaging, plastic, carton, label, and chemical suppliers, all dependent upon American industry.

The American manufacturing allowed the Chinese economy to grow, that earned valuable foreign exchange, and employed whole towns. This very much assisted in the alleviation of poverty, and domestic development from the 1990s into the new Millenium.

Even though the relocation of American manufacturing to China led to a trade deficit of approximately US $295 billion in 2024, the boost in corporation profits represented the economics of comparative advantage. Thus, the exodus of American manufacturing to China was seen as a win-win situation.

The US-China economies became totally intertwined – an espoused success story of globalism at the time.

The China Syndrome

China, after an early period of issues with the pioneers became a manufacturers paradise for large corporations. New entrants received land and tax incentives, labour costs were low, energy costs were cheap, and EPA and OSH regulations set low barriers.

For American middle-sized companies and SMEs clusters of industry specific OEM manufacturers set up around the country.

Shenzhen became the hub for electronic products, Dongguan for toys, textiles, and other assembly type products, Guangzhou for electronics and auto-parts, Foshan for home appliances, Yiwu for household items and toys, Ningbo for apparel, and plastics, Jiangsu for precision made products, Wuxi for electronic and home appliances, Xuzhou for construction and consumer hardware products, Quanzhou for footwear, Xiamen for apparel, electronics and sporting goods, Fujian for textiles and footwear, Qingdao for home appliances, Yantai for agricultural products, food processing equipment, and packaging equipment, Shandong for large appliances and industrial goods, Chongqing for notebooks, and vehicle components, Hunan for machinery manufacture, and Hefei for home appliances.