(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Pete Sweeney
HONG KONG, July 27 (Reuters) – Taiwan’s Foxconn will build a $10 billion display plant in Wisconsin, employing up to 13,000 workers. Americans who want to lure factory jobs away from China may cheer; President Donald Trump, who wants the credit, already is. However, hopes of a mass reverse-migration have not come true, for commercial and political reasons.
Predictions that American production in China was coming home started five years ago. They made sense then. The cost advantages of the People’s Republic had eroded – not just for labour but also electricity, which is a bigger cost than wages for many products. The fracking revolution knocked the bottom out of U.S. power pricing. A 2016 study by Tractus Asia found costs were 15 to 70 percent higher in China depending on location.
Oil above $100 a barrel made trans-Pacific shipping expensive, and made it better to stay close to the end consumer. Some companies – including General Electric – found it was ultimately cheaper and safer to make some things stateside, especially products involving fancy intellectual property.
It is difficult to measure reshoring precisely, but there have been few signs of any wider retreat. Indeed, that is a big reason why Trump got elected. Investment is going in both directions: Ford recently said it would move some car production to China from Mexico. Despite years of double-digit wage increases on the mainland, China’s trade surplus with the United States is fatter than ever.
Part of the reason is a collapse in oil prices that made shipping affordable again. Another is supply chains: it makes little sense to pull out if all your components are also made in China. Labour costs and regulations are indeed painful, but they sell robots in China too. Beijing also has ways to make factories stay. Firms that publicly withdraw, laying off workers, know they risk permanent market-access problems with angry officials.
U.S. manufacturing is doing okay, and there is nothing wrong with Foxconn adding some jobs. They are just not coming at China’s expense: the iPhone assembler still has hundreds of thousands of Chinese employees. Political pressure may influence a few decisions, and for some companies a return does make commercial sense. But it will take far more to prompt a bigger exodus.
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CONTEXT NEWS
– Taiwanese electronics manufacturer Foxconn on July 27 announced plans to build a $10 billion plant in Wisconsin, which will build liquid-crystal display panels. The LCD plant could eventually employ up to 13,000 workers. U.S. President Donald Trump said the deal would not have happened without his efforts.
– Foxconn, formally known as Hon Hai Precision Industry , said the investment “signifies the start of a series of investments by Foxconn in American manufacturing in the coming years.”
– In 2013, Foxconn said it would invest $30 million and hire 500 workers for a new factory in Pennsylvania, but that facility was never completed.
– In June, Ford Motor said it would move some production of Focus cars to China and import the vehicles to the United States. It said the move would save $500 million in costs.
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(Editing by Quentin Webb and Martin Langfield)
