BY all accounts the geography of global manufacturing has changed, with China in particular and developing countries in general accounting for a high share of global manufacturing production and exports. This has given rise to the view that the “old” international economic order that prevailed from the time of the first industrial revolution up to the 1980s, in which developing countries were predominantly producers and exporters of primary products and the developed countries the providers of modern, technologically advanced manufactured goods, has given way to one in which developing countries increasingly dominate the manufacturing landscape.
Implicit in that view is an idea, not all wrong, of a change in the balance of global economic power that is reflected in this change in economic geography. That view is also corroborated by the fact that South Korea, an erstwhile developing county, is now included in the developed countries’ list and China is seen as the most likely challenger of the American economic hegemony. But a few countries such as these do not make the whole of the global south, and a closer look is needed at the evidence on the change in manufacturing geography and its implications. Such evidence has been collated in the Organisation for Economic Cooperation and Development’s (OECD) periodic publication, Science, Technology and Industry Scoreboard , for 2013.
China’s emergence
Consider, for example, the years of intensive globalisation since 1990, when the geographical shift in global manufacturing production reportedly occurred. In 1990, the top five countries (the United States, Japan, Germany, Italy and France, in that order) in terms of country-shares in “global manufacturing value added” accounted for 57.8 per cent of the total. Within that group, the spread in terms of individual shares was large, with the U.S. notching up 22.7 per cent and France just 4.4 per cent. China, in that year, accounted for a small 2.7 per cent. By 2000, the aggregate figure of global value added share of the top five had risen to 61 per cent, with China (6.6 per cent compared with 26.5 per cent for the U.S.) joining the leaders at rank four, Italy standing fifth and France dropping out.
The real change occurred between 2000 and 2011, though even in 2011 the aggregate share of the five countries, at 56.3 per cent, was close to the 1990 level. However, now China topped the table, with a 21 per cent share. Between 1990 and 2011, the other four toppers lost share, with China being the gainer. Outside the five, over this period, South Korea’s percentage share rose from 1.5 to just 2.8, Brazil’s from 1.8 to 2.8, India’s from 1.1 to 2.3, Indonesia’s from 0.6 to 1.8, Mexico’s from 1.3 to 1.8 and Thailand’s from 0.4 to 1.0.
To summarise, the changing manufacturing landscape had four aspects to it. First, an element of continuity in the form of the continued dominance of a few countries over global manufacturing, though with some change in the relative ranks held by them. Second, a noticeable reduction in the shares of leading OECD member-countries in global manufacturing value added between 1990 and 2011. Third, corresponding dramatic increases in China’s share, especially after 2000. And, finally, small share increases in other so-called emerging markets, leading to a wider geographical dispersion of global manufacturing.
Global exportsThe picture with regard to global manufacturing exports is not very different, though here the shift in ranking is more generalised and the geographical spread of manufacturing presence in emerging markets other than China is greater. The top five in terms of shares in global exports of manufactures (consisting of the U.S., Germany, Japan, France and Italy, in that order) accounted for 42.5 per cent of the total in 1995, with the U.S. garnering 12.4 per cent and Italy 5.5 per cent. China, on the other hand, accounted for just 2.8 per cent of the total. By 2009, China had become the leading exporter of manufactures with a 12.9 per cent share, followed by Germany (10.3 per cent) and the U.S. (10.1 per cent). The top five exporters (which included Japan and France) accounted for 43.8 per cent. Other than China, among developing countries, South Korea registered an increase in manufactured export share from 3 to 3.7 per cent, Mexico from 1.6 to 2.1 per cent, India from 0.7 to 1.6 per cent, Thailand from 1.2 to 1.6 per cent and Brazil from 1.1 to 1.2 per cent.
Thus, seen in terms of national shares in global manufacturing value added and exports, the factor that has contributed overwhelmingly to the emergence of a new international division of labour seems to be the remarkable surge of China as a manufacturing power rather than the transformation of developing countries as a group into manufacturing hubs. This possibly explains the fact that the threat to the north is not seen as a threat from the south, but as a threat from China in particular, epitomised by the large trade deficit that the U.S. runs with China. According to the Bureau of Economic Analysis of the U.S. Department of Commerce, the U.S. exported $152 billion worth of goods and services to China and imported $478 billion worth, to run a trade deficit of $326 billion. That difference has shaped the debate.
Inputs to Chinese goods
However, that entire deficit is not on account of production shifting to China. China imports a range of capital goods, components, intermediates and raw materials from other countries, so the domestic value added content of exports is much less than the aggregate export figure suggests. The foreign value added content in Chinese exports has, according to the OECD Secretariat, increased from 11.9 per cent of gross export value in 1995 to 32.6 per cent in 2009.
Of the foreign valued added content, close to 60 per cent is on account of inputs from OECD countries. So, China is substantially the final processing platform for a range of manufactured exports from across the world.
An August 2011 study by Galina Hale and Bart Hobijn of the Federal Reserve Bank of San Francisco titled The U.S. Content of “Made in China” is quite revealing. It shows that imports from China account for only 2.5 per cent of the U.S. gross domestic product (GDP) and total imports 16 per cent. Further, Chinese goods accounted for only 2.7 per cent of U.S. consumption spending, which was about one-quarter of a 11.5 per cent foreign share of American personal consumption expenditures. Moreover, of the 2.7 per cent of U.S. consumer spending on goods labelled “Made in China”, only 1.2 per cent reflects the cost of imported goods, because “on average, of every dollar spent on an item labelled ‘Made in China’, 55 cents go for services produced in the United States. In other words, the U.S. content of ‘Made in China’ is about 55%.”
It is true that the U.S. does not import from abroad only the final goods that enter its consumption basket. There are many consumption goods produced and sold in the U.S. that use intermediates imported from abroad. Taking that into account, Gale and Hobijn calculate that 13.9 per cent of U.S. personal consumption expenditure (PCE) is directly or indirectly on imported goods. The figure for PCE diverted to Chinese goods is 1.9 per cent, which is just 0.7 of a percentage point higher than the share of Chinese-produced final consumption goods in the U.S. personal consumption spending.
Finally, the aggregate import content of PCE has fluctuated within a narrow range of 11.7 per cent and 14.2 per cent, with the share having peaked in 2008 when oil prices where ruling high. In sum, while China is an important source of imports into the U.S., China’s advance on this front was not so much at the expense of U.S. production as it was at the expense of other exporters to the U.S.
But this is not all. Even imports from China are not necessarily from Chinese firms. As one analyst (Baizhu Chen, “Buying from China is in fact buying American”, on Forbes.com) puts it, America is “importing from China lots of Apple iPhones, Dell computers, Gap shirts, Hasbro toys, Mattel dolls and Nike shoes”. That is, American companies choosing to locate production facilities or source from China account for a significant share of U.S. imports from that country. The result is what has been found in the case of a number of commodities, and illustrated by the iPhone example: “In 2009, iPhones contributed about $2 billion, equivalent to 0.8 per cent of the Sino-U.S. bilateral trade deficit. One iPhone 3GS was sold for about $600. These phones were exclusively manufactured by Foxconn, a factory in a southern Chinese city called Shenzhen. To produce them, Foxconn had to import $10.75 worth of parts from American companies. The rest of its $172.46 components came from Korea, Japan, Germany, and elsewhere. Out of a $600 iPhone, how much does China get? A puny $6.50, or 1 per cent of the value.” Apple and other American companies together received close to 70 per cent of the imported iPhone’s value, making the contribution of Chinese value added to America’s trade deficit against China much smaller than $2 billion.
This implies that even when the geography of manufacturing production changes, the power relations that underlie the international division of labour shift much more slowly. America may be losing out, however slowly. But American companies lose far less and even more slowly.
If American power is measured in terms of the strength of American firms and American capital, hegemony is still with the U.S. The strident cries on the looming threat from China, or even the BRICS (a grouping of Brazil, Russia, India, China and South Africa) seem to be just propaganda to pre-empt any challenge to existing imperial power. In the peculiar transformation of the geography of global manufacturing, production may have shifted across borders, but there is a lag in any shift in the distribution of economic power. The only reason for the U.S. to fear is that one nation, China, has seen a dramatic movement of some variables in its favour.
