Will Political Issues between US and China affect Manufacturing?

on July 1, 2013

There have been several articles and blog posts recently that have reported the re-emergence of American manufacturing; some manufacturing is being brought back from China into the US.  This process is known as “re-shoring”.  Some of the reasons for this include the narrowing of US and China wage gaps, increased or misunderstood logistics cost, an emerging “buy American” sentiment as well as concerns about political issues in other countries.

A couple of recent and unrelated news items may highlight some of the political risks companies may see in off shoring to China.   The first one is regarding Edward Snowden, the notorious leaker from NSA and the second one is about American CEO Chip Starnes who was held for 6 days in a China factory over a wage or severance pay dispute with Chinese laborers.   Chip Starnes was released after some settlement has been reached.

 The ongoing saga of Edward Snowden isn’t over.   After he revealed he that he leaked information on the practice of NSA surveillance, he escaped to Hong Kong, where the Chinese politely ignored extradition requests from the US Government and subsequently let Snowden escape to Moscow, where the Russians are also (no so politely) ignoring US requests.   

Both incidents should highlight a few issues with US manufacturing in China or other countries. 

  • China is going to do what China wants to do and is not (at least in today’s world) going to bend over backwards for the US.   Any American manufacturing company that believes that being a US company will afford them protection is badly mistaken.   The US is not going to stop China from doing things that may hurt US manufacturers in China.  Granted, China badly needs US manufacturing so it is going to make sure that China remains an attractive off shoring venue.
  • It’s obvious that China and the US are in a “hacking” war as Snowden revealed that the US was doing some major internet mischief on the Chinese government.  Likewise we know that China has been hacking into US websites for years to steal intellectual property and other secrets.   One concern that any US company has with a location in China is how safe is its intellectual property?
  • The Incidence with Chip Starnes was not a political issue, but highlights that local law and customs in foreign countries are much different than in the US.   If US workers held an American executive hostage for any reason, there would be an immediate response from local and possible federal authorities.   In China, the local officials brushed it off as a wage dispute and felt that it should be handled by the parties involved.

Granted neither of these incidents  were indications of an adverse trend,   local Chinese governments are usually very friendly to US businesses,  but it does make one wonder if there any American businesses looking for “one more reason” to pull manufacturing out of China.  The political issues between US and China could be a deciding factor.