Decoupling from China, meaning the U.S. would be far less reliant on manufacturing there, is a key issue being raised by the coronavirus crisis.
What are the pros and cons of our current relationship to both China and other low-cost countries where the bulk of our manufacturing is outsourced?
The case for our current strategy is rooted in classic economics: Adam Smith’s “Hidden Hand” economic strategy that drives specialization based on ability and cost.
Offshoring to China has substantially lowered the cost of consumer goods in the U.S.
Also, with all of China’s failings, bringing China into the global economy has been a positive — the country’s government is authoritarian but not totalitarian. China might be as troublesome as North Korea, only 60 times bigger, had Henry Kissinger and President Richard Nixon not started integrating the country nearly 50 years ago.
The case for decoupling has long been ignored because of the advantages of the current system.
But the COVID-19 crisis shows the limitations of sole sourcing to countries — and if there could be more pandemics in our future, have we miscalculated our true risk? Also, the U.S. has paid a heavy price in communities where the manufacturing job base has hollowed out.
Also to be considered is that China has not progressed on the democratic continuum, but has found an authoritarian balance with its social credit score, now enabled by artificial intelligence and Big Data.
National-security risks must be considered in treating such a country as a favored trading partner.
So the U.S. needs to answer two questions: Should we continue to outsource globally as much as we can, and, if so, do we want to continue the relationships with China?
I’m in the no column on the second point.
As to the first question, the argument for reshoring becomes more powerful with the increase in manufacturing automation. However, reshoring comes with many complications and is not an easy process, a topic that will be discussed in a future column.
In the longer term, globalization will not go away. But we may be at a one-step-back stage after several decades of two steps forward.
Isaac Cheifetz, a Twin Cities executive recruiter and strategic résumé consultant, can be reached through catalytic1.com.