I’ve heard talk about the US and other countries ‘decoupling’ from China (or China from them, or just decoupling in general) so thought I’d start a thread here to ask a few questions then pose a hypothetical debate. First off, what, exactly do they mean by ‘decoupling’? As far as I can tell, it doesn’t mean to stop all trade, but it’s always been a bit fuzzy to me what exactly this entails and what, practically, it would mean. Can someone give me a thumbnail definition and maybe some examples of what it would look like? What would a US/China decouple actually look like and function like in practical terms? If the US decouples, does that mean other US trade partners would have to decide if they wanted to decouple from the US or China, or would it have no secondary effects? If so, how would those work?
For the hypothetical debate, what would happen if the US or China decides to decouple completely from the other? What would this do to their respective economies? What would it do to the global economy? How long would it even take to do this? Months? Years? Decades?
In the good old days, at least, it was not considered a good idea to have a single source for critical components for your products. Forget about politics - if an earthquake wiped out the single plant making those components, you were screwed. With just-in-time manufacturing these days you’d be even more screwed, like we saw in the early days of the pandemic.
Having a single source country is not so great either. Especially one likely to be your enemy in a future war.
There would be big benefits to bringing some manufacturing back, though not in manufacturing employment because it would only make sense if you could automate the hell out of the new factories.
When I was working in semiconductors we manufactured in Taiwan, not China, which was good, but our and everyone else’s supply chain was all over the world. Any shut down of air cargo would be disastrous. There is no way of bringing everything back, but there is of bringing enough back to meet critical needs. And this will probably require a guaranteed market perhaps subsidized by the Feds. Companies have to make money in the short run to do the right thing in the long run.
I recently heard some financial experts and investors speculating about the next decade becoming the “lost decade” for economic growth. In a nutshell, they are seeing trends away from a global economy and a return to a more local one. What is driving this is a less productive and less profitable global supply chain of certain goods and services. I recognize this trend to be true of the IT industry where off-shore development as being far less cost effective than was originally throught. Additionally, there is desire in the consumer commodity sector to try to buy things made locally (i.e. Made in the USA) rather than having everything imported. Associated with that are privacy concerns among consumers for electronics and apps developed in China. It’s not any one specific thing but a combination of factors, real or imagined, that are are driving businesses and consumers to a more domestically driven product base and economy.
Long story short, minimum years if not decades, Walmart shoppers will pay $50-100 more for a TV (and everything else), there will be less choice/shortages, etc.
It took 30 years to gradually move the supply chain to China. It’s going to take years if not decades to de-couple (short of a real war).
Even now, most of the “de-coupling” is not real. So what if an iPad is assembled in China if all the parts are shipped from China? Or in Taiwan to evade the Trump tariffs?
It’s a global supply chain now. You can’t build an iPad with 99% of the parts, you need 100%. The automotive makers have known for 20 years that a $0.10 spring can shut down the assembly line.
And the US is going to have to subsidize/put tariffs and other barriers in place to incent companies to move their operations at a higher cost. Regardless, Walmart shoppers are going to have to pay $50 more for a TV or $100 dollars more for an iPad.
I worked for Apple’s largest supplier for 4 years, and the only company that “moved” operations to the US for Trump. Let’s just say it has been a giant money hole that hasn’t made anyone happy.
How will that work? Will the United States put a tariff on Chinese medical items? If we do, that’s going to raise the cost of medical items; not an easy principle to sell this year. Or will the government subsidize domestically manufactured medical items? Easier to do but only because the costs are hidden.
People say that but they generally don’t mean it. Why did Walmart get so big? By selling cheaper products. And they did it by buying Chinese manufactured products.
People will say in the abstract that they prefer American made products. But when it comes down to whether they buy American made products or lower priced Chinese made products, they buy the lower priced products and don’t think about where they came from.
I agree that people like cheap products but why does Walmart succeed where K-Mart failed. Both were selling Chinese products in about the same proportion.
Then there is IKEA, which does sell cheap furniture but they are good quality for the price point. Sure IKEA sells a lot of stuff made in China but they are made elsewhere in the world too.
I think Chinese dominance in manufacturing is not just their ability to make things cheaply but there is something more going on. There are plenty of countries willing to make stuff that China makes today at the same or better price point but I have a feeling they are kept at bay by China.
Also stores like Trader Joes and Aldis are not totally reliant on China and do very well indeed thus questioning the notion that people only like cheaper products.
Are you saying that Aldi in the USA is not synonym with cheap pricing, high volume, squeezing the suppliers to death? Because that is how they grew big in Germany, where they started. And specially in the food sector this has had nefarious consequences for farmers and suppliers in general, but people still buy there like crazy because, you know, they are so cheap.
Cheap does not equal China, of course, and for sure not in the food sector which is more local.
I just got the impression by the way you wrote your last sentence that you stated that Aldi and Trader Joe’s are not reliant on China and not cheap
I do not know Aldi in the USA and that is why I asked, because in Europe they are synonym with cheap, but not Chinese. Thanks for the setting that clear.
While it true that for the overwhelming proportion of the population and purchasing decisions, price is the leading driving factor. However, given the choice when price differences are insignificant or not a consideration, I think there is an emerging consumer awareness to eschew Chinese products.
I think China dodged a bullet when the TPP failed. They’ve since become much more aggressive in the economic and geo-political sense. This is having a negative reaction in Europe and in North America. Not sure what the reaction is in South America. I fear that Africa is lost to Chinese economic influence.
That said, the “buy lcoal” is a sentiment being expressed by western economies because they have recognized the knock on effect that off-shoring manufacturing has had on their economies. I don’t think that repatriation of manufacturing is possible. Certainly not in any short timeframe. Certainly not for most nations. But decoupling from China is a theme taking hold globally and I think it’s largely to the good given China’s predatory economic and geo-political policies.
I don’t know what the grocery store situation is like in Germany but here in America, Aldi isn’t all that big. Aldi stores exist but they’re far from dominant. They’re a minor player in the American grocery business.
Here in Germany Aldi is so big that it had to split into Aldi Nord and Aldi Süd many years ago, otherwise they might have run into trouble with the consumer watchdog bc. of dominant position. Family feuds played a role in that decision as well. The two Albrecht brothers (Aldi = Albrecht Discount) were the richest Germans for a while. They have left their mark on German retailing: the market is divided between cheap (Aldi, Penny, Edeka… Aldi is the biggest IRC, and the market has consolidated enormously) and expensive luxury (a niche, though a lucrative one). The middle ground and local family business are becoming much too rare for my liking (though small and local is making a comeback lately). They are so strong that they have expanded bigly into foreign markets (Spain, UK, Swizzerland, Italy…) while at the same time preventing foreign chains like the French Carrefour or the British Tesco from getting a foothold in the German market. They have tried repeteadly and given up each time. Germans have some of the cheapest food supplies in Europe with a limited choice and a mediocre quality.
Sorry if this off topic, Aldi sells very little China stuff as far as I know. Tinned asparacus comes to mind, not an important staple. They will have an easy time decoupling completely.
A great example maybe the decoupling of recycling from China brought on not by US sanctions but by China itself. After China stopped accepting recycled paper and plastic, a lot of these goods have been headed to the landfills. But most recently, I have seen gasifier s and incinerators slowly picking up the slack in the US.
Another good example for the US is clothing. China used to be make cheap clothing for the US market, until years back when other places like Vietnam, Nicaragua, Bangladesh, Pakistan, … picked up and China does not dominate the market.
Not everything is due to nefarious actions by China.
There are two reasons why China still does so much of the world’s manufacturing despite not being the cheapest:
Economies of scale. If you have the perfect product idea and it involves a moulded plastic part, a fabric part and some integrated electronics, and you want 500,000 assembled and shipped in a couple months time…China’s gonna be the place to look. Because they have many huge factories either close to each other or with good transport links.
Many countries can beat China on one of these requirements, or on a smaller scale, but not the whole shebang on that scale.
While in the US, China has a reputation for being mega-cheap, mega-crap products, I think it’s less and less true every day. China is investing a crazy amount in R&D, and is following the same path as Japan did, except that China wants high tech aswellas holding on to the entry-level market.
Just look at 5G…I’m not going to go into the right or wrongs of the security threat, but from a practical point of view part of the reason it got banned was because China was first and were well placed to monopolize the market. Any security threat was therefore magnified.
Labor costs in China have risen, so that it’s too expensive to make clothing (and some other goods there). I think that’s why place like Vietnam and Bangladesh are where the sweatshops are. Also because of the labor costs, Chinese companies are moving big time into automation and robotics.
I think you are forgetting currency manipulation and low taxes to keep these factories competitive.
Isn’t that nefarious ?
They have also stolen and continue to steal technologies from the western world. A few years back, I worked for a Chemical technology company and we were very hesitant to share any proprietary information / drawings. If you shared with one customer in China, it would be stolen and sold to all other customers.
There used to be (maybe still is) search engines in China like Baidu which had all US confidential information shared on it.
Currency manipulation got a lot of play in the US a couple years ago, but was always overblown, note that among actual economists it’s a subject of debate whether the currency is overvalued or undervalued. Plus the idea that currency manipulation is some kind of “sweep the leg” special move that wins all the dollars but no other country can or would try is absurd.
And low taxes…what does that mean? State subsidies? What major economies don’t subsidize any industries?
I don’t personally agree with subsidizing industries, but if it’s nefarious, then all major economies are.
That’s absolutely a fair point and I agree.
However, the point I was responding to was about why China can still be a major exporter despite other countries being able to undercut them on price i.e. discussing relatively low technology, low margin, goods. And in my response, I started talking about high-tech stuff where China is leading the way.
Incidents of IP theft isn’t so relevant at these ends of the spectrum.
Yeah, and you can probably find a lot of that stuff via Google too.
It’s eight years old, but this article (New York Times paywall warning) goes into why the iPhone is made in China rather than the US.
One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.
A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.
The article describes how the factories that make many of the components, like tiny screws or rubber gaskets, are right there and able to produce in vast quantities. In two weeks, the company hired the nearly 9,000 industrial engineers needed to train the 200,000 factory workers.