Import Recapture Strategy

From the NYT, on rising Chinese export prices:

Markups of 20 to 50 percent on products like leather shoes and polo shirts have sent Western buyers scrambling for alternate suppliers…..Already, the slowdown in American orders has forced some container shipping lines to cancel up to a quarter of their trips to the United States this spring from Hong Kong and other Chinese ports.

It’s time for state and local economic development agencies to start honing their import recapture strategies.  By ‘import recapture strategy’, I mean the judicious use of loans and other aid to help rebuild and restart manufacturing production and jobs that were lost to foreign factories.*

Yes, I know that sounds weird after all the manufacturing jobs that have been lost.  Anecdotally, the price differential between China and the U.S. was on the order of 35%.  Given the price jumps in the pipeline, all of a sudden the cost of U.S. production might be in spitting distance for some industries.That’s especially true since domestic manufacturers have the advantage of being close and flexible.

I’m talking here both high- and low-tech production here. The question is which industries are ripe for import recapture, and how many jobs could be created. Here I’m going to tell you an important  little secret–you cannot rely on the BLS import price data to tell you where the gap has closed between import and domestic prices.  Two reasons:

* The BLS does not measure the difference between the price of imports and the price of the comparable domestic goods.   Just doesn’t.  Never has. It’s a gaping hole in the data.

*The BLS  does measure changes in import prices–but very very badly (see here and the conference proceedings here). To understand how badly, take a look at this chart, which supposedly tracks the price of Chinese imports.

If you believe this data, the price of Chinese imports into the U.S. has been effectively flat (plus or minus no more than 4%) for the past seven years, through the biggest import boom in U.S. history, the biggest financial crisis in75 years, and a 25% appreciation of the Chinese yuan against the dollar.  As the saying goes, “this does not make sense.”  

Back again. I’m currently figuring out  how to develop a database of import-domestic price gaps, so we can assess where an import recapture strategy makes sense. If you are interested in working with me on this, drop me a note at mmandel@visibleeconomy.com

Comments

  1. What a joke. If China gets too expensive, they’ll just go to Vietnam or Bangladesh or Indonesia. As McCain said three years ago in Michigan, in a rare fit of honesty for a politician, those jobs aren’t coming back and frankly you shouldn’t want them to come back. Next you’ll be talking about how we should crank up the agriculture subsidies to get the farm jobs “back,” despite the fact that no Americans want those farm jobs and they’re largely done by migrant labor these days.

    • Mike Mandel says:

      > If China gets too expensive, they’ll just go to Vietnam or Bangladesh or Indonesia

      Maybe you are right, maybe you aren’t. The point is that we won’t know if the difference in price has narrowed, or for what industries, because the data doesn’t exist.

    • I think that the decision of companies to manufacture things in China is based on more than cheap wages. For a developing nation, China has awfully good infrastructure, infrastructure often built for the purpose of sustaining exports. As well, China also has a policy of encouraging multinationals to open up shop in order to gain access to Chinese consumers. Further, the Chinese regime and political situation are likely much more predictable than the regimes and political situations of other developing nations. China is quite unique among developing nations.

    • These low-wage production jobs will never narrow in price for more than a short time period, like the temporary doubling in the price of oil a couple years ago. The moment foreign prices rise, that will be a signal for competitors to come in and build cheaper capacity, roping in the cheap labor of the trillions more poor people in those countries. Even if China has certain efficiencies, there’s a lot more untapped labor there, that Chinese entrepreneurs could use to undercut existing higher-priced Chinese or US production. Any US “recapture” will simply lead to more bankruptcies as foreign capacity expands, which is why it is pure fantasy.

  2. Jackson Stone says:

    Great post! The US can push the process forward by reducing income taxes and payroll taxes and raising sales prices on foreign imports. Make tariff-jumping FDI a central focus, and encourage industrial diversification with gradually but steadily increasing local content regulations.

    Never forget: China 1978 was a total mess: no infrastructure, little technology, mass poverty, few natural resources, a corrupt and bankrupt central government, surrounded by hostile states (USSR, Vietnam). If they could industrialize: ANYONE can.

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