Not long ago, I went to the United States to visit a number of U.S. manufacturing companies. In the current American “re-industrialization” strategy, can the “re-equipment” of U.S. manufacturing enterprises play a role in any major restructuring of the U.S. economy? I believe that the United States’ “re-industrialization” strategy is not creating new manufacturing channels and still relies on the short-term advantages of traditional industries to expand their exports. Therefore, the effect on the future will be greatly reduced. The United States will adopt more protectionist measures to safeguard their current “re-industrialization” strategy. Chinese companies must recognize the substance of this current round of “re-industrialization” before investing in the United States.
It should be noted that since November 2009, President Barack Obama has emphasized the “re-industrialization” strategy to get rid of dependence on the financial services industry and revitalize the manufacturing industry. He hopes to restore the U.S. economy and reverse the deficit and trade deficit problems. There obviously have to be changes in both the domestic and international U.S. markets. For the domestic market, the U.S. must cut taxes, increase liquidity and stimulate the supply and demand dynamic. For the international market, they must promote U.S. products and price competitiveness and improve the balance sheets of U.S. companies and institutions. During Hu Jintao's trip to the U.S., he and his team realized that through the Sino-U.S. trade cooperation agreement the U.S. government is promoting their idea of “re-industrialization.”
According to my understanding, the U.S. government is promoting this “re-industrialization” strategy not only to heat up their multinationals’ business in emerging markets, but also to achieve a transformation of domestic enterprises and attract more Americans into manufacturing jobs. This “re-industrialization” cannot do without government support. Besides the U.S. auto industry, most of the other manufacturing sectors have lost their former glory. The recovery of these industries will not happen quickly. During the crisis period, three major U.S. auto companies were not able to adequately finance the cost of developing green energy vehicles and now the local government is trying to attract Chinese investment in private capital to the area.
Therefore, at present, the United States’ “re-industrialization” will not have any drastic effects in the short-term. The United States will still have to rely on traditional industries to expand exports. The U.S. government, in U.S.-China bilateral trade and investment talks, has demanded that China open up more markets and import more U.S. industrial products. This is just as Japan previously requested American domestic markets be opened to their automobiles. Chinese companies entering the U.S. market must understand the essence of “re-industrialization.” They must simultaneously recognize the advanced manufacturing and green energy industry, the timing of entering the U.S. market, long term strategy and the cost of investment. Chinese enterprises should note that the generation of new manufacturing and large scale green energy industries have still not occurred and will not for a number of years. Therefore, those Chinese enterprises that prematurely enter into the U.S. market will likely become martyrs.
So, in the medium and long term, the United States “re-industrialization” strategy can help the U.S. rebound from the low point of its crisis. The key is whether or not the U.S. can once again play on its national capacity for innovation. Once the present “stagflation” hangover intensifies, the U.S. government will struggle at all levels to make ends meet. The effect of recovery could be dampened if the U.S. government adopts trade protection measures. The healthy development of the world economy will pay a very heavy price if this happens because the dollar-dominated international monetary system will be at risk of collapse.
(The author is vice president of the Economics College at Fudan University.)