The Chinese are still at it! A scary trend has developed over the past decade. Countries that have a major cost advantage in the production of goods and services are now producing many of the world’s mass consumption goods — countries like Mexico, Latin America, India, and China. I still remember in the past when everything was either made in Japan or Hong Kong. But, with China’s new focus on capitalism, the world is now faced with competing with an extremely low cost manufacturer. Take a look at products around your home. I’d bet a good percentage is “Made in China.”
The trend over the past few years has seen a shift of global manufacturing to cheap factories in China. Once quality control was a major deterrent from manufacturing in China, but the quality control has significantly improved to the point where now it is just as good as in the West.
This is the major reason why companies such as Wal-Mart Stores Inc. (NYSE/WMT) have become very successful selling cheap goods. It is also why we are paying less for many goods. China allows for this.
Sure, there has been increasing pressure on China to float its currency and try to stem the flow of Chinese-made goods into the U.S. and other western countries in Europe. But the trend hasn’t changed yet.
In the U.S., a new comprehensive agreement designed to limit the flow of Chinese clothing and textiles into the country is near. New import quotas are expected to save jobs in the U.S. But, there will be a cost to this strategy too, and many U.S. mass retailers know this, having seen many Chinese products halted at the border. While some kind of quota system makes sense, the reality is the import levies will surely raise the cost of clothing paid by American consumers.
In Europe, the European Union head office has already cut the import of Chinese blouses, sweaters, and men’s trousers for 2005, according to a new quota deal signed in June. But again, this ultimately will only hurt the pocketbooks of the consumer and will impact sales of major retailers in Europe.
The bottomline is, one group may benefit from new initiatives, but society as a whole will suffer under higher clothing costs. I also believe that, despite the quotas, manufacturers will continue to look elsewhere in the world for cheaper costs. The end game is to produce and sell goods as cheaply as possible.
Despite the trend of increased protectionism worldwide, I believe China will continue to be the destination of choice to manufacture. It’s cheap, standards are improving, and there’s a labor workforce in the hundred of millions. No, I don’t see this situation changing anytime soon.