Chinese Manufacturing and the US Economy

By Sylvester W Taylor

Disclaimer: This is an essay submission for the Fishbowl Supply Chain Management Scholarship and does not reflect the opinions of Fishbowl

Recent research by IHS Global Insight reveals that China is producing 19.8 percent of the world’s manufacturing output and, consequently, has become the largest manufacturer in the world, a position that the United States had previously held for almost 110 years. A growing fear of United States manufacturers is that there will be an increase in the number of factories shutting down and jobs moving overseas.

However, the China Federation of Logistics Purchasing Managers Index showed in May that new manufacturing orders in China were declining at a faster pace than the overall economic slowdown, a key indicator that manufacturing activity in China may have already peaked in the current economic cycle.

In this paper, I will be discussing on the topic on how can US manufacturers compete with Chinese manufacturers and will examine the effects Chinese manufacturing industry has on the US economy. 

Because of rising labor costs, labor shortage, inflation, and increased energy costs in China, manufacturing companies such as Coach, Inc. have already moved production out of the country, and others are reluctant to begin operations there. Some research-intensive sectors such as pharmaceutical, biotech and other life sciences companies are also reconsidering China. In addition to these reasons, which have resulted in an overall cost increase, some U.S. businesses are hesitant to set up operations in China because of the complexity of the business environment there. Obstacles such as cultural differences, political risks and intellectual property issues have also become serious considerations. Some U.S. corporations feel that domestic facilities are easier to manage and that the abundance of skilled workers is an undeniable advantage.

The stability of U.S. manufacturing is illustrated by research done by Boston Consulting Group which projects "that by 2015, strong productivity and relatively low wages would help the U.S. move ahead of China as a base for making goods which will be sold in North America."

U.S. manufacturers have the advantage of producing goods necessary for information technology and media-related industries, and are the leader in the production of chemicals, aircraft engines, industrial machinery, and military defense. These sectors are designed to produce goods that are vital in a technology-based, globalized economy. China, on the other hand, has a manufacturing base that is much more dependent on cheaper goods in sectors such as textiles, apparel, appliances, and certain commodities.

In the long-run it appears that fears of the dramatic decline of the U.S. manufacturing sector are largely unfounded, and that there is a significant possibility that manufacturing activity in China has peaked in this economic cycle and will actually begin to decline.

In conclusion, with cheap Chinese labor costs couple with other factors affecting the global market as compare to American Industries, the Chinese industries will continue to rise on the increase because of these prevailing factors. On the other hand, the Chinese industries are moving faster in the global economies due to their policies wherein they are carrying on more investment in the developing countries and dumping cheap quality commodities at the detriment of trades.

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While China is seen as a manufacturing powerhouse, it does have a number of weaknesses that are causing its manufacturing output to decline. These weaknesses include rising labor costs, labor shortage, inflation, and increased energy costs. The United States is seen as more stable, and it is still the global leader in many manufacturing industries. U.S. manufacturing will likely continue to improve while China may have likely hit their peak.

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