Here’s something you hear thrown around a lot: “China is taking all of our jobs.”
This was perhaps true a generation ago.
But the reality is that while China’s economy took off in the last 20 years and seemingly everything was “Made in China,” the cost of labor was forever going up.
And now, China is facing an economic slowdown amid a government-sponsored shift towards the service sector and away from manufacturing, the “Made in China” story is falling apart as Mexico and Brazil become more attractive for global manufacturers.
One look at this chart tells you why: labor costs about five times more in China than it did two decades ago and now costs even more than it does in Mexico.
In its year-ahead outlook, Credit Suisse includes this chart as part of its argument for being bullish on Mexico, nothing that Mexico’s manufacturing competitiveness — particularly against China — is as strong as its ever been.
Mexico also benefits from having 81% of its exports flow to the US — an economy that is widely seen as the best Western economy — while Brazil, which has also seen manufacturing competitiveness measured by average US dollar wages in the sector increase against China, exports 17% of its goods to China, one of this highest proportions among emerging markets.
Now, it’s worth noting that in the last year Mexico has taken an edge on labor costs against China because of the dollar’s strength, which benefits free-floating currencies like the peso over pegged currencies like the yuan, but this is a blip in the grand scheme of this shift over the last two decades.
(Brazil, on the other hand, has all sorts of economic problems — not the least of which is a collapse in value of the real against the dollar — and so their “gains” in competitiveness here have come with major costs. Though when measuring any US-related manufacturing impacts here, Mexico and China are more relevant comparisons regardless.)
The real story here, though, is that the manufacturing story has simply changed in China and around the world.
For years the story in global manufacturing was all about China: labor was cheapest and consumption was highest.
And that is simply no longer the case.
from Business Insider http://ift.tt/1SwP5HK