If the US Re-Industrializes, China Will Be in Trouble

The U.S. and other Western countries are looking to set in motion plans to return to a more stable economy by using quick solutions to escape the shadows of the financial crisis and encourage new economic growth. Developed countries are trying to take advantage of industrialization by regaining international manufacturing competition, which will affect China’s dominance greatly.

The U.S. has long accounted for the world’s largest share of manufacturing. Peaking in the 1950s, the U.S. accounted for about 50 percent of the world’s manufacturing output. But as it developed, the U.S. began to slow down its industrialization, partially because of globalization but also because outsourcing production had become a major trend. As a result, the U.S. turned to a more service-oriented industry as the manufacturing industry in the U.S. continued to decline. Marking a loss in its status as the world’s biggest producer, its share of 19.4 percent of the world’s output was lower than China’s 19.8 percent in 2010.

This hollowing out of the manufacturing sector had a huge impact on the U.S. employment rate. Ever since the financial crisis, the unemployment rate has remained high. The Obama administration has been trying to raise the employment rate, but this has not helped much. The main reason that the industrial sector has been hollowed out is that many companies, including high-tech companies like Apple, have moved the vast majority of their production lines to emerging economies like China.

For this reason, the U.S. and Europe hope to regain their roles as the centers of world manufacturing through governmental re-industrialization strategies and remodeling their industry competitive advantages. The Obama administration plans to not only develop a renewable energy sector to facilitate the transition, but also to boost employment and promote energy conservation in response to the economic crisis. The U.S. also hopes to actively develop high-value manufacturing industries such as advanced manufacturing, intelligent manufacturing, renewable energy, biotechnology, information technology and other emerging industries to recreate a new and strongly competitive industrial sector.

As the U.S. begins to walk down the road of energy self-sufficiency, it plans to reduce the import of oil and gas from the Middle East and Canada in order to reduce production costs and its dependence on and exploitation of gas in the country. The combination of this transformation and re-industrialization will heavily promote the economic competitiveness of the U.S., which will have a huge impact on the world’s industrial division of labor as well as on China. In the future, high-end manufacturing in China will face extrusion from the U.S. and Europe, while also facing off with Southeast Asian countries in low-end manufacturing. Enormous challenges await as countries compete with each other to upgrade their industrial sectors.

Manufacturing in China leads the world right now, but with increased labor costs and new environmental standards, China will quickly lose its comparative advantage. If the U.S. launches its Trans-Pacific Strategic Economic Partnership Agreement successfully, the export market for China’s manufacturing industry is bound for demise as countries continue to increasingly outsource to Southeast Asian countries.