‘Reshoring’ brings many jobs back to the rich countries
IN 2014, ARNOLD Kamler, chief executive of New Jersey-based Kent International, took a big step: he resumed making bicycles in the US, 23 years after uprooting production to China. This year, he hopes to sell half a million US-made bikes.
For business and political leaders gathered in the Swiss Alps town of Davos for this year’s World Economic Forum, Kamler’s experience – part of a process Morgan Stanley once dubbed the “re-industrialisation” of the US – is a cause for some anxiety.
If a mix of accelerating automation and trade protectionism is the defining economic climate of the moment, globalisation may well be in decline, and developing nations that failed to capitalise on the past two decades of economic integration – notably those in Africa – may have missed the boat altogether.
It is an issue with profound consequences – for emerging economies that have built their fortunes on exports, and for richer nations that hope a “reshoring” of industrial production will appease disgruntled blue-collar workers at home and re-ignite stagnant wage growth.
Global trade likely grew last year at just 1.7 percent, lagging world economic growth for the first time in 15 years and for only the second time since 1982, according to the World Trade Organisation, which expects a further slowdown this year.
While there are complex reasons behind the slowdown, it’s hard to ignore the rising popularity of trade protectionism and anti-globalisation. US president-elect Donald Trump’s campaign pledges and plans for “a very large border tax” on firms producing overseas.
But perhaps even more influential is businesses’ push towards automation, digitisation, robotics and innovations such as 3D printing that undermine low-wage countries’ biggest comparative advantage.
That contributed to the return of 250 000 manufacturing jobs to the U S between 2010 and 2015, according to data from Reshoring Initiative, a group that advises US businesses.
Automation
Kamler’s state-of-the-art plant, for instance, will soon be able to produce bicycles with just 12 employees per shift.
“Most of those people will be sitting looking at computer screens. The same operation in China would need 60 people,” he said.
Automation tends to see jobs return to the countries which develop the technology – car maker Ford’s decision to expand a Michigan plant rather than start one in Mexico is seen as partly motivated by a focus on high-tech electric vehicles.
“Reshoring” is bad news for emerging economies transformed by the manufacturing-for-export boom and now suffering from its reversal. But for countries only now getting in on the manufacturing act, things were worse, said Hung Tran, the managing director of the Washington DCbased Institute for International Finance.
“The conclusion to reach is that the business and growth model which worked for many countries, especially in Asia, won’t provide the same growth opportunities as before,” Tran said. “That’s the big challenge for emerging economies that are only just trying to take off… it’s much harder to do than 20 years ago when all you needed to do was attract investment, produce and export,” Tran said.
Laggards include swathes of Africa and also India, the world’s fastest growing economy. With a 1.2 billion population, it accounts for just 2 percent of global trade, but needs desperately to create jobs for the 10 million youth entering the workplace each year. The fear is that as low-level factory jobs for unskilled workers become scarcer, workers in these countries, unlike in early birds such as China or Malaysia, will be ill-prepared for the higher-tech manufacturing of the future.
Against that backdrop, India may struggle to meet its goal of raising manufacturing’s share of the economy to 25 percent. That share is currently 16 percent, half of China’s level.
Others are even worse off – manufacturing comprises 10 percent of Nigeria’s economy and 6 percent in Tanzania, according to the World Bank. The picture is mirrored across Africa where the population could double by 2050 to 2.5 billion.
Not everyone is pessimistic. India for instance may be able to capture the burgeoning trade in services. It and peers such as Indonesia are moving to reform their economies, unlocking faster growth and making exports less important.
It could eventually prove a game in which everyone loses. Take Trump’s tirades against Mexico. US firms have invested more than $200bn (R2.72 trillion) in Mexico, employing more than a million people, but are now under pressure to shutter factories producing for US markets.
Yet reshoring may not deliver the kind of benefits Trump and US unions hope for. The new high-tech plants will likely create far fewer jobs than expected.
Second, the loss of manufacturing jobs – and failure to create them in countries with huge populations – may trigger more migration to rich countries, exacerbating the tensions that are fuelling the lurch towards right-wing parties.
Migration patterns already suggested people’s movement was increasingly dictated by “push” from poorer areas of the world, rather than by “pull” from richer countries, UBS said.
As former Mexican president Felipe Calderon warned Trump in a tweet: “The more jobs you destroy in Mexico, the more immigrants the American people will have.”