Aug 15 2011

Oh the times, they are a changing!

Published by at 2:18 pm under China,Comparative advantage,Trade

The Economist – Sticking it to China

Not long ago, China was known as a source of low-skilled, manufactured goods imports to the United States. China’s abundant workforce andcheap raw materials made it the perfect place for American firms to source their toys, cheap electronics, and textiles from. But today things are different. China’s economy grew at over 10% in the first half of 2011, a rate that shocked many who predicted that weak international demand for its exports would slow China’s growth rate and begin to put pressure on employment. However, slow grown and weak employment figures are more characteristic of the US economy in 2011 than its Asian rival (or partner, depending on how you look at it).

So I guess I should not be surprised to see this article in the Economist, in which it appears that, at least in certain industries, the United States is now the source of low-skilled, labor and land intensive imports into China. But China’s famous “plastic toys” are even higher tech than America’s new export to China, chopsticks.

Jae Lee, a former scrap-metal exporter, saw an opportunity and began turning out chopsticks for the Chinese market late last year…

In May Georgia Chopsticks moved to larger premises in Americus, a location that offered room to grow, inexpensive facilities and a willing workforce. Sumter County, of which Americus is the seat, has an unemployment rate of more than 12%. Georgia Chopsticks now employs 81 people turning out 2m chopsticks a day. By year’s end Mr Lee and Mr Hughes hope to increase their workforce to 150, and dream of building a “manufacturing incubator” to help foreign firms take advantage of Georgia’s workforce and raw materials.

America as a source of abundant and cheap labor, raw materials, and capital… sounds more like China in the 1990s, doesn’t it?

Some say that the asendancy of the East will be defining event of the 21st Century. China, 600 years ago, was not only the world’s most populous country, but it was also the world’s most innovative, richest, and largest economy. The West, at the same time, was relatively poor and technologically under-developed compared to China. Today, after 300 years of Industrialization, the West is typically thought of as the “developed world” and China and its Asian neighbors fall under the designation of the “developing countries”.

But as the size of the developing worlds’ economies continues to grow at rates that far exceed those achieved in the developed world, the income gap between the two grows ever narrower; therefore it should not be a surprise to see the identities of their economies grow increasingly muddled. China, once the low-cost producer of basic manufactured goods, now finds it resources (land, labor and capital) growing increasingly scarce. The US, on the other hand, with its nearly stagnant growth, 16% under-employment, large amounts of idle capital and relatively abundant forests and other natural resources, will grow more attractive to manufacturers from the East looking for a place to source cheap, low-skilled goods from, even something as simple as chopsticks!

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

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