Manufactured

in America, purchased in China?

Take a look at the back of your IPhone. If you look closely, you will be able to find Designed
in California. Manufactured in China. In Taiwan, to be precise, but that is beside the point.
Like the majority of consumer products we, rich, Westerners, purchase, this too has been
produced in Asia. In the 1980s manufacturing was increasingly outsourced, first to Eastern
Europe and afterwards even further away from where the products were ultimately
consumed. The low production costs in developing countries outweighed increased
transport costs and other risks. Now, rumors are that production is moving back, enabled by
the technological breakthrough in robotics and automation. Adequately termed radical
insourcing, what would this mean for global trade and investment flows?

In her article Robots may cut off the path to prosperity in the developing world, Sarah
OConnor explores how radical insourcing might influence employment in both the
developed and the developing world: in the first not much, in the latter drastically.
Manufacturing is the way out of poverty, taking this away will impede poor countries from
developing. If we read closely, we can find that in the case of Adidas, the production of only
1m pairs of shoes out of 301m has been insourced, which means it has in fact a negligible
impact on trade and investment flows. However, if radical insourcing does become a
dominant trend, this would mean a plurality of things, most obviously being that
investments from multinationals will not flow to LCCs1 but remain in the West and that trade
volumes from LCCs to the West will be smaller.

However, OConnor fails to see an irreversible trend that has started the day the West
started outsourcing its production. We must not forget that many countries, such as China,
have changed from simply being a manufacturing country into a fast-growing middle-income
country. The Chinese economy is booming, Chinese are buying up entire parts of Africa and
Latin America and are increasingly holding shares in Western multinationals. For most
Western companies, Asia is their main focus and their fastest growing market. This is
exemplified by the fact that China is since recently iPhones largest market, with 131 million
iPhone owners.2 Whereas outsourcing started as producing goods abroad and exporting
them back for consumption, this is no longer the case. The new logic is that Asia produces
for Asia, and stands in stark contrast with the picture OConnor paints. Rather than less
transportation costs, when production is moved back there will simply be reverse
transportation costs.

In this more representative future scenario, this would mean that investments from China
into the West will increase, as China will probably be funding the investment of new
factories and, understandably, trade volumes from the West to China will increase. And one
last thought, the robots that our factories will use will need to be produced somewhere
How about outsourcing the production?

1
Low-Cost Countries
2
A report from the China Internet Network Information Center, a branch of the Ministry of
Industry and Information Technology. Available at http://www.chinanews.com/it/2016/05-
17/7872762.shtml (link in Chinese)