China’s Impact on Domestic Manufacturing

China’s economy over the past few decades has grown to be one of the largest and most powerful in the world. Currently, China has the second-largest economy in the world behind the United States. Manufacturers worldwide currently source 2% of their industrial inputs from China. China has been able to take advantage of the following to assist in its domestic growth in the manufacturing sector:

• Overcapacity allows China to produce more manufactured products with a faster turnaround time.
• Low labor costs tend to result in more efficient and cost-effective manufactured products in China. The wages stay lower due to the oversupply of workers at their disposal as China is the home to over 1.41 billion people. The highest minimum wage is only $3.70 per hour in Shanghai compared to the federal minimum wage in the United States being $7.25 per hour.
• The supply chains in place in China entice international corporations to negotiate and operate businesses within their borders. They have been an all-inclusive one-stop shop that sources, distributes, and manufactures products.
• The lack of regulations regarding health, safety, employment, and environmental regulations is an incentive to manufacture products in China. Additionally, there are lower taxes and duties currently being assessed compared to the United States.
• China has competitive currency practices in place that allow them to manipulate currency value by depressing it, as determined necessary. This allows them to keep prices lower than their competitors.

The United States has some competitive advantages as well for their domestic manufacturing outputs, consisting of the following:

• A focus on developing and maintaining skilled workers in the workplace.  While China has an overcapacity issue, it relates more to unskilled type labor. The United States has shifted more towards advanced manufacturing, technology, and automation requiring this skilled labor.
• Ensure manufacturing standards are in place to produce reliable and durable products that fulfill quality standards. The United States has strict labor and manufacturing laws along with health and safety standards in place, which isn’t a guarantee with similar items produced internationally.
• Production of green products that avoid harm to human health and the environment compared to similar products produced. This is more prevalent in the United States as eco-labels and certifications are identified on manufactured product packaging and certain customers are loyal to purchasing these products.
• The protection of intellectual property through patents, trademarks, and copyrights along with continuously enforcing potential infringements.  The United States has clear protection of this property, and it is strongly enforced. China has improved in similar intellectual property protection, but businesses still need strong internal controls to protect their property.
• Customer service allows for better communication including faster response times due to closer geographic proximity. This allows for a better customer relationship with more personalized attention when dealing with a domestic manufacturer in the United States.

The impact of China on domestic manufacturing in the United States is far-reaching in the current global marketplace. To discuss these factors in further detail, contact a member of HBK Manufacturing Solutions at manufacturing@hbkcpa.com or 330-758-8613.