China and US Manufacturing: Future Competition?

“Make America a magnet for new jobs and manufacturing,” President Obama shouted as a slogan for the revival of U.S. manufacturing in his first State of the Union address of his second term. Prior to this, Apple announced it will begin to move part of its computer manufacturing back to the U.S., adding another piece toward the “return” of manufacturing to the mainland.

Many people think this is a wave of “re-industrialization” that the U.S. started. Originally, in fact, Obama’s administration has consistently emphasized “revitalizing manufacturing,” rather than “re-industrialization.” Additionally, U.S. manufacturing has not “languish[ed]” since the middle of the last century. Instead, parts of it moved overseas, particularly to developing countries; in other words, some aspects of manufacturing have simply made a transition to contracting abroad.

It is precisely due to such outsourcing that many products, including the Apple iPhone, are produced in China. U.S. products imported from China are predominantly home and office necessities, which have relatively low consumer demand elasticity. Therefore, imports will not fluctuate greatly because of the revival of manufacturing in the U.S. This is also displayed in “A Framework for Revitalizing American Manufacturing” issued in 2009: “Manufacturing activities that are likely to remain highly labor intensive, or that require proximity to raw materials not found here, are unlikely to be good candidates for being made in America,” and the U.S. will “seize the manufacturing opportunities of the future,” such as clean energy, biological engineering, aeronautical and space technologies, nanotechnologies and so on.

The U.S.’ boost in manufacturing will not have a significant influence on the general import structure between the two countries, nor will it have a deep impact on China’s labor-intensive manufacturing sectors such as the textile, clothing, footwear and toy industries. However, renovations to U.S. manufacturing are more likely to pose a challenge to China’s relationship to those vital industries now rising in importance, which our country is striving to cultivate. In July 2012, the twelfth Five-Year National Development Plan of Strategic Emerging Industries clearly pointed out our country’s aim to foster and develop such critical enterprises. Among these pursuits are energy conservation and environmental protection, next-generation information technology, biology, high-end equipment manufacturing, new energy resources, new materials and alternative-energy vehicles. This focus on development is quite similar to the core ideas around revitalizing manufacturing in the U.S.

We do not know whether the outcome will be pleasing or troublesome. Today, reviving manufacturing has ostensibly become a strategy for the U.S. Its objective appropriately reserves a space for the sustainability and expansion of China’s traditional manufacturing sector. In the next three to five years, those “made in China” products with a traditional advantage will still enjoy development and export opportunities. In this regard, China should not worry too much about the impact the U.S. will bring to renovations in manufacturing, nor should it blindly emphasize traditional manufacturing due to such external pressure. On the contrary, China should take steps to speed up independent innovation, accelerate changes in its industrial structure, gain itself a permanent place in “the third industrial revolution” and have a head start in global competitiveness in the burgeoning industries of the future.

The author is vice dean of the Institute of International Economy, University of International Business and Economics.