The Fall of the Offshore Empire

POST DATE Jun 30, 2016

AUTHOR Udo Jahn

I read the news every morning when I get up. I usually pay the most attention to the business section, because I can tell if there have been any traumatic events in the world by what the market is doing. I recently read that Iceland beat England in a Euro Cup match. What the heck? That win is like my local beer league hockey team beating the Swedish National Team. Wow, can you imagine that. And markets were up! That is weird! 

The articles I’m reading lately all talk about China’s slowing economy. The global stock market is down. Does that make sense to you? People say that the slowdown of China and Asia’s economies is a result of the world economy being down. So the Asian economy is down because the world economy is down. The stock market is down. All of that makes sense until you read other headlines. US housing starts are at an all-time high and the United States’ GDP is expanding, but markets are still down because of slower Chinese manufacturing. Something is wrong here. 

We all know that the United States has been sending their manufacturing offshore for years because of favourable cost savings. So if the United States is busy, and people have more money to spend because of the cheap cost of fuel these days, China should be busy. Therefore, the market should be up. It’s not! What’s going on? I believe I know the answer. It can be summed up in one word: reshoring.

The manufacturing industry in the United States is beginning to reshore, or in other words, bring much of the manufacturing it had previously outsourced to Asia back to North America. Many North American companies are serious about remaining globally competitive. This competition allows them to provide goods at decent rates, which makes it feasible to keep manufacturing in North America. 

I recently took a trip to Europe and discovered that the Europeans are reshoring on a large scale as well. This means that reshoring is taking a toll on Asian manufacturers, just like offshoring took its toll on North American manufacturers over the past few decades. Looking through this lens, the economic downturn in Asia is not due to the slowing of the world economy, it just means that other parts of the world have amped up their game to become more competitive.

Besides the cause of the downturn, I have also read articles asking if all this reshoring is happening, then why are employment numbers in North American manufacturing not at the same level they were before we started offshoring? I think this is a no brainer, because in order to compete we in North America and Europe have had to buy into automation. Automation is one of the keys to becoming globally competitive, but automation means we do not need as many workers. Manufacturers need more workers than when offshoring was happening, but not as many as before that period. This is a good thing as it means we are much more efficient today than we were yesterday. An increase in manufacturing jobs also leads to an increase of jobs in other sectors, such as transportation. 

It’s too bad that the stock market doesn’t know what’s really going on, since it should actually be up if the Chinese economy is slowing down. In the news, it seems that it’s easier to sell bad news rather than good news. Looks like we should all invest in North American and European manufacturers now, before the sophisticated investors clue in.

What do you think?


Author: Udo Jahn

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