China steps up adaptation efforts as US-led ‘reshoring’ campaign ramps up

Despite a shared interest in redirecting the US economy away from China, both administrations are using different rhetoric to explain their actions.

Mr. Lighthizer refers to a process of “strategic decoupling” in his book, while Mr. Biden and his officials say the United States is “risk-averse.” In either case, the result was the same: tighter restrictions on China’s access to high-tech components and know-how.

In parallel with a strategy known as the “small garden high fence,” which provides tight protection to certain critical sectors while maintaining economic ties, the United States is promoting the diversification of supply chains led by itself and its allies. .

These efforts have several names, including “friendshoring,” “reshoring,” and “nearshoring,” but the Chinese government views them all as forms of decoupling.

With China policy almost certain to be a top issue in November’s presidential election, and bipartisan consensus on the need for containment unlikely to weaken in the near future, analysts say It encourages people to adapt to the situation by opening up more widely.

Where will China’s exports go?It affects the US less and less – at least not directly.

“Geopolitical conflicts will not stop in the short term,” said Chiu Dongxiao, dean of the economics department at Hong Kong’s Lingnan University.

He added that unemployment is a major driver of Washington’s reindustrialization and warned that current trends could continue for more than a decade.

“Once reindustrialization begins, it is cost-effective and difficult to reverse. [It] Huge investments are being spent, but they are being sunk. ”

According to Chinese data provider Wind, U.S. manufacturing investment in 2022 will reach $670.5 billion, up 10.5% from the previous year and 54% compared to 10 years ago.

The Reshoring Initiative, a private U.S.-based think tank, estimates that nearly 2 million manufacturing jobs have returned home since 2010, and this trend is only likely to accelerate.

“It took 11 years to bring back the first million jobs, but just three years to bring back the second,” it said in a report on data for the first half of 2023. .

Manufacturing employment in the United States will increase by 364,000 in 2022, an increase of 53% from the previous year. About half was generated in the chip and electric vehicle industries, with large inflows also seen in household appliances, chemicals, electrical equipment and chemical products.

Meanwhile, China reported a 10.3% decline in direct investment from the United States that year. Mexico will also replace the United States as its largest trading partner, moving forward in early 2023.

Ye Yu, deputy director of the Institute for World Economic Research at the Shanghai Institute of International Studies, said U.S. restraint measures could still backfire, citing the example of Huawei.

The Chinese tech giant unexpectedly unveiled the Mate 60 device last September during U.S. Commerce Secretary Gina Raimondo’s visit to China, but despite having limited access to cutting-edge components, it is still using domestically produced chips. This was a breakthrough in design.

“Service industries are America’s strength, but building a comprehensive supply chain for innovative industries in the United States is difficult. Just look at the auto workers’ strike to see the impact,” Ye said. Ta.

“Another question is whether we can develop robots to replace human workers, but there is a lot of uncertainty,” she explained.

“That’s why manufacturers are moving to Mexico and Vietnam.”

The Reshoring Initiative tracked 807 announcements on reshoring and foreign direct investment in the first half of 2023, with an estimated 182,000 jobs related to these shifts. However, only 9% return from China, 17% from South Korea, 15% from the UK and 11% from Germany.

Chinese investors are making their own adaptations, increasing their positions in emerging manufacturing hubs such as Mexico and Vietnam to access the U.S. market.

Wang Zicheng, a researcher at the China Center for Globalization (CCG), a Beijing-based think tank, said that the reindustrialization of Western countries and the industrialization of less developed economies such as India may not be a “zero-sum game” for China. insisted. development of China.

“Beijing has shown an open attitude toward Chinese manufacturers expanding overseas, which is consistent with the established pattern of industrial evolution,” he said.

The world’s second-largest economy has taken steps to strengthen its resilience, and as the world’s largest consumer goods market has announced plans for several sectors, including its first supply chain expo in November. He is trying to take advantage of his position.

He Weiwen, a senior fellow at CCG, said the US’s restrictive economic policies were not “enough” to stop globalization, and that China would develop a number of technological advances over the next decade as part of the fourth industrial revolution. He said he would make progress.

“More importantly, China is insisting on wide openness as a countermeasure against restrictions and containment,” he said, noting that a big part of the change in supply chains is technology.

Lingnan University’s Qiu said other countries, including U.S. allies, are likely to have a “similar reaction” because “the causes of reindustrialization that we see in the United States are also seen in other countries.” .

“This could be an opportunity for China to develop its domestic market and reduce its dependence on other countries by increasing investment in innovation,” he added.