|Uniqlo flagship store in Oxford Street London|
In a story published by Reuters on April 22nd the results of a survey showed that some 37% of US companies currently manufacturing in China are considering moving back production to the US itself. This is because the wage gap between Chinese and US wages is narrowing and the availability of labor due to high unemployment in the US.
And it looks as if Chinese companies are following the example of their US peers with the added advantage that the US is a low inflation economy compared to that of China.
Chinese conglomerates, on a mission to expand their global footprint and avoid "anti-dumping" tariffs, are shifting more of their production to the United States.
In the United States, cash-strapped states desperate for revenue and jobs, are rolling out the red carpet for foreign companies that can guarantee both.
More Chinese manufacturers have been launching their own U.S. facilities in the last five years, said Thilo Hanemann, research director at Rhodium Group, a New York-based economic advisory group.
The biggest investments are being made by Chinese firms with products that have been penalized with hefty anti-dumping tariffs, he said.
The United States imposes these financial penalties on imported products that it believes are being sold cheaper than the cost it takes to produce them. Dumping creates an unfair advantage in the marketplace, according to the Department of Commerce.
Daniel Rosen, a China expert and partner with Rhodium Group, said Chinese investments in the United States can create domestic jobs and spur economic growth.
"There is precedent for this," he said. "Japanese companies came here in the 1980s for the same reasons, including finding a way around anti-dumping duties
Since the North American Free Trade Agreement (NAFTA) came into force on January 1st 1994 millions of US jobs were lost as conglomerates moved manufacturing to Mexico and other Central American nations where labor and union laws, as well as environmental norms were far less strict than in the US itself.
The movement of capital, technology and manufacturing from China to the US is not a surprising move at this point in time as the US economy´s main driving force is retail and service industries – around 70% or total GDP. The setting up of Chinese factories in the US will help reduce unemployment and rejuvenate dying cities where industry has all but vanished.
This is a phenomenon that will have to be followed closely and it remains to be seen if footwear and textile / apparel operations eventually come to the US. Imagine the saving involved in transport costs from half way around the world but some of these would be offset by relatively higher US wages which would push up the unit price of products.
Information courtesy of Reuters, CNN and Fox. Edited by Richard Smith