Panama Canal at reduced capacity. Suez Canal at reduced capacity (for very different reasons). Therefore shipping costs and delays are rising. Could this be a trigger for the recession everyone seems to be predicting?
I.e., the goods still need to get where they're going, but it's going to cost more, either through longer routes or more expensive means (rail/truck).
You’ll find that many of those are already made in the USA, especially if they can be made by robots.
Here’s one now! https://www.walmart.com/ip/Hyper-Tough-32-Gallon-Heavy-Duty-...
China will end up making high value items where shipping is a small fraction of the cost (Apple already flies most of their products via jet) whereas cheap items that are not labor intensive will move back to near their destination. Other things will move to Mexico and further south.
Medium value parts actually (eg. OEM).
And it's the same specialization that Mexico has had since the late 1990s and early 2000s when their factories left for China [0][1][2]. That's why Mexican manufacturing has started growing again - costs have equalized between CN and MX manufacturing for intermediate parts.
For example, take apart a Sony PS2, Compaq workstation, or a Toshiba DVD Player from the early 2000s - all the electronics parts in it will say Made in "Mexico/Malaysia/Thailand", and the plastic molding was 50% Mexico and China. China didn't enter the fray until after 2008 when Steve Jobs tasked Tim Cook with exploring manufacturing in China, and Samsung began opening OLED factories there as well.
Low cost gizmos and gadgets have been manufactured in Vietnam and India for a decade now, and within 10 years they'll both also climb up the value chain manufacturing wise. Nhat Tao in Saigon and Sector 63 in Noida have a similar feel as Huaqiangbei in Shenzhen 10-15 years ago.
History doesn't repeat, but it sure as hell rhymes.
Mexico also saw economic and political instability 20-30 years ago when its factories began leaving for China. Same thing happened to Thailand in the 1990s, Malaysia in the 2000s, Turkiye in the 2010s, and Phillipines in the 1990s-2000s.
[0] - http://international-economy.com/TIE_Sp03_Rosen.pdf
[1] - https://www.cnn.com/2003/BUSINESS/12/13/china.mexico.reut/
[2] - https://www.nytimes.com/2003/09/03/world/as-china-gallops-me...
China has started running into the problems that South Korea and Japan have, where they produce a large amount of university graduates not willing to do blue collar work.
China's annual exports drop for first time in seven years.
Among key trading partners, exports to the U.S. led the decline, down 13% from the previous year. Demand from the European Union and Southeast Asian countries also shrank.
https://asia.nikkei.com/Economy/Trade/China-s-annual-exports...
What they need to do, and probably won’t, is stop devaluing the yuan and relax capital controls so that Chinese consumers can invest and spend in something that isn’t housing, and finally fuel consumption growth. The current situation essentially results in Chinese being underpaid.
China Tries To Censor Data About Nearly 1 Billion People in Poverty
In his article for the business outlet Yicai, Li cited data from a 2021 research paper by the China Institute of Income Distribution at Beijing Normal University, which placed the number of people living on less than 2,000 yuan ($300) a month at 964 million, or nearly 70 percent of the population.
https://www.newsweek.com/china-article-censorship-1-billion-...
China's population drops for second year, with record low birth rate
The National Bureau of Statistics said the total number of people in China dropped by 2.08 million, or 0.15%, to 1.409 billion in 2023. New births fell 5.7% to 9.02 million and the birth rate was a record low 6.39 births per 1,000 people, down from a rate of 6.77 births in 2022.
https://www.reuters.com/world/china/chinas-population-drops-...
Manufacturing is not disappearing in China yet. Or at least not skilled manufacturing.
Any deindustrialization that is happening is in the low margins space like Textiles, plastic crap, and the likes, which have begun moving to Vietnam, Bangladesh and India - but that was always going to happen. There's a reason why those textile factories in Tijuana or Ciudad Juarez in the 1980s shut down by the early 2000s.
For higher value intermediate parts, the manufacturing base continues to exist in China, but is now competing at the same price point as an OEM in Thailand, Mexico, Poland, Romania, Russia before the war, etc.
The same thing happened in Mexico, Thailand, Turkiye, Malaysia etc.
Skilled manufacturing continues to grow within China and these countries, but skilled manufacturing requires a high amount of human capital, which means your average Joe ain't getting retrained.
Imo, now is the best time for China to expand it's horrible social safety net. Thailand, Turkey, and Malaysia all did a similar expansion of their social safety net when they were at China's level decades ago.
There's a reason why Turkey today has living standards comparable to Central Europe versus in 1990 when it was comparable to Algeria and Phillipines. And why China didn't catch up to Mexico's HDI until COVID happened, which contracted the Mexican economy to a level unseen anywhere else other than India.
> graduates not willing to do blue collar work
People are willing if you pay them enough. The issue is the pay is relatively low, but CoL has gotten very high.
This happens to all countries. Go read older news articles about Turkiye in the 2000s, Malaysia/Thailand in the 1990s, Mexico in the 1990s, etc.
They all developed rapidly and then stagnated.
The connection is that aggregate supply and aggregate demand intersect at the current price and output levels of the economy. If aggregate supply contracts, this shifts the output level lower, and the price level higher to compensate. Basically, there is a shortage of basic goods & services needed for the economy to function, so the market price mechanism is trying to incentivize people to work on those sectors that are in shortage.
Drilling in a level, these aggregates are divided into consumption (current needs) + investment (production in expectation of future needs). A supply shock in a basic service like transportation means resources need to be reallocated to cover the increased cost. That means decreased investment, and all of the potential investment opportunities competing for a smaller pool of savings (which is just the excess of current production over current consumption). This drives up the "natural interest rate", the cost of capital in the absence of central bank interventions.
The central bank has a choice between feeling the impact as inflation (where prices rise) or recession (where output drops). If it holds policy rates below the natural interest rate, the money supply increases, and you get inflation. The economy remains out of balance; the market is trying to shift resources from investment to consumption, but if rates are artificially low, investment will be artificially cheap and too many people will be writing software we don't need while we don't have enough truck drivers. If it holds policy rates above the natural interest rate, the money supply shrinks, and you get recession. This is letting the economy come back into equilibrium, but it means that all those software engineers will be laid off and have to get jobs as truck drivers.
The Fed's choice is one of these. They can influence whether we feel the supply shock as a painful recession where lots of people lose their job and have to retrain, or whether we feel it as higher prices as the market tries to correct. But because a supply shock is a real drop in output, it means worsened standards of living regardless.
Is traffic still going the southern way towards the Red Sea from the Mediterranean?
Not that the CEOs needed much of an excuse anyway in the last couple of quarters.