For a significant period in the era of globalization, the U.S. economy was closely intertwined with the outsourcing of manufacturing. "The world is flat", as it was frequently said during that period, indeed this was a major characteristic of the golden age of globalization. Multinational companies searched the globe for cost advantages and utilized the seamless channels of free trade to construct complex global supply chains. Take Apple, the world's largest U.S.-based consumer electronics manufacturer, as an example. None of its flagship products, the iPhone smartphones, are manufactured in the U.S. Even more intriguing is the fact that Apple itself does not own manufacturing plants or production lines. Instead, it leverages its strong supply chain management capabilities and outsources the entire production to contract manufacturers.
China is one of the biggest beneficiaries of globalization. With various comparative advantages such as low-cost labor, raw materials, and energy costs, it quickly became the "world's factory" during the golden age of globalization, leading to its rapid economic rise. China's GDP, which stood at RMB 11 trillion when it joined the WTO in 2001, surpassed Japan to become the world's second-largest economy in 2010, and reached RMB 121 trillion in 2021, achieving a remarkable 11-fold growth in just 20 years.
The era of globalization, built upon free trade, investment, and global supply chains, experienced its turning point after 2017. With Donald Trump assuming the presidency of the U.S., the tide of deglobalization surged as the country exerted its national power. China, as the largest source of the U.S. trade deficit, became the primary target and was forced into a trade war with it. The golden days of accustomed globalization now seemed to have come to an end. The intensification of international geopolitical frictions has further fuelled the momentum of deglobalization.
The transformation of the world is not only reflected in trade but also in the changing landscape of global investment, particularly in the realm of manufacturing. The global investment layout in manufacturing is undergoing a significant shift, with the U.S. emerging as a new hotspot for manufacturing investment. The slogan of revitalizing U.S. manufacturing had already been put forward during Barack Obama's second term as the President. After the Trump administration, it is under the Biden administration that these efforts have begun to bear fruit.
Joseph Quinlan, the head of market strategy at Bank of America Private Bank, in a report in mid-June of this year, mentions that “we believe the U.S. is in the early stages of a manufacturing supercycle”. Foreign direct investment has played a significant role in this, as many multinational corporations are eager to establish large-scale facilities in the United States. Quinlan stated that investment in the U.S. has truly captured the world's attention, and when talking to companies from South Korea, Japan, and Europe, their focus is on establishing operations in the United States. He estimates that this trend will continue into the latter half of the 2020s.
According to data, the annualized expenditure for constructing new factories in the U.S. manufacturing sector reached USD 189 billion in April 2023, which is three times the average level of the 2010s (USD 63 billion). Compared to the 2010s, the current investment cycle involves much larger capital expenditures. The latest data shows that manufacturing construction spending in the country reached USD 194.3 billion in May of this year, which is 2.5 times the level when the Biden administration took office. This statistic, conducted by the U.S. Census Bureau, includes all expenditures related to the establishment of new production facilities by businesses. A report from the U.S. Department of the Treasury on June 27 analyzed manufacturing investment in real terms and by industry. It revealed that the significant growth came from the computer, electronic, and electrical industries, with the total value of construction projects underway in these sectors approaching USD 100 billion (annualized) in April, accounting for over 50% of total manufacturing facility investment and nearly a tenfold increase compared to two years ago.
The U.S. Treasury Department's report also compared manufacturing investment in other advanced economies and found that Japan, Germany, Australia, and the UK did not experience a significant increase in manufacturing investment beyond historical trends. This indicates that the U.S. has shown greater attractiveness in attracting global manufacturing investment compared to other developed countries. An article from the U.S. digital news website Axios summed it up by stating that a manufacturing investment supercycle is starting in the country.
The return of manufacturing to the U.S. is attributed to the policies of the American government in the past two years. The signing of the Inflation Reduction Act, the Bipartisan Infrastructure Deal, the CHIPS and Science Act, and pent-up demand have driven the growth of hundreds of billions of dollars in investment in the country. Under the inducement of the chip act, significant investments or intentions have poured in. For example, there is TSMC's investment of USD 40 billion in the second phase in Phoenix, Arizona. Additionally, Micron is investing USD 100 billion to establish a semiconductor factory in Syracuse, New York, Intel is investing USD 20 billion in Arizona, and IBM is investing USD 20 billion in New York.
In addition to policy guidance, the U.S. maintains some traditional advantages in attracting manufacturing investment, despite higher costs. These advantages include low corporate income taxes, high productivity, and significant research and development expenditures. Furthermore, the U.S. has a prominent advantage - consumer spending levels that surpass any other region in the world. According to United Nations data, the U.S. population accounts for only 4.5% of the global population, but personal consumption represents 30% of global consumption. Substantial investments in the U.S. industrial sector often create high-paying jobs, which will generate more job opportunities in the country and lead to wage increases.
Why has the U.S. become a hot spot for global manufacturing investment in recent years? It must be acknowledged that the renewed favor for manufacturing in the country is not solely due to economic reasons but is also closely related to changes in the geopolitical environment. In recent years, the global geopolitical situation has deteriorated significantly, and two major events have largely influenced global investment decisions in the manufacturing sector. Firstly, the U.S. has led its allies in a geopolitical and geoeconomic "containment" of China, imposing sanctions or restrictions on China in various areas such as technology, industry, and investment. Secondly, the Ukraine conflict initiated by Russia has led to comprehensive sanctions by the Western world against Russia, and geopolitical factors have begun to determine investment behavior in the manufacturing industry. In this global wave of manufacturing investment realignment, the vast U.S. market has emerged as the biggest beneficiary, while China's past advantages are rapidly fading. If the world remains in a state of long-term geopolitical turmoil, the U.S. stands to benefit in the medium to long term.
As the world's leading superpower, the U.S. possesses the largest consumer market globally, is at the forefront of global technological innovation, and has the largest financial market. If it attracts investor favor in manufacturing investment relocation, both the American economy and high-end manufacturing will receive effective support. A strengthened manufacturing sector within the U.S. economy will be of more advantage compares to the weakness in manufacturing compared to other countries. Economic analysts believe that understanding the scale and duration of the wave of manufacturing investment in the U.S. is crucial for comprehending the macroeconomic landscape for the remaining years of the 2020s. Therefore, revitalizing manufacturing is not only vital for the U.S. economy but also holds significant implications for the global economy.
Final analysis conclusion:
The United States is experiencing the onset of a manufacturing investment supercycle, a phenomenon that is expected to have far-reaching implications not only for its own economy but also for the future development of the global economy, including the Chinese economy.
