Bernd von Jutrczenka/picture-alliance/dpa/AP Images
Employees work in the production halls at the plant of German automotive parts manufacturer Continental in Guadalajara, Mexico, September 21, 2022.
President Biden’s new executive order blocking U.S. companies from investing in Chinese firms working on technologies that can be used by that nation’s military and surveillance units is just the latest in what amounts to a delinking of the world’s two largest economies. Some of that delinking is based on military and strategic concerns, which Biden’s order exemplifies. Some of it is based on China’s own raisons d’état, in which it has curtailed some in-country activities of U.S.-owned companies and facilities.
But most of the delinking has resulted from the decisions of U.S. corporations to locate production closer to home after having endured the long waits and high prices that the COVID pandemic inflicted on transoceanic supply chains. That has proved to be a particular boon for Mexico, to which a host of U.S. and global corporations (including Chinese ones) have been relocating factories over the past two years. The U.S. government’s decision to extend permanent normal trade relations to China in 2000 short-circuited the move to Mexican production that many American corporations had envisioned after the passage of NAFTA in 1993. Chinese labor was then a lot cheaper than Mexico’s, its available labor force was larger, and its investments in infrastructure and education vastly exceeded Mexico’s. Only now, with production in China becoming an iffy proposition, is the promise of NAFTA—now amended as the U.S.-Mexico-Canada Agreement (USMCA) to be somewhat friendlier to workers and the environment—being truly realized.
But the “promise of NAFTA” was chiefly a promise made to Wall Street and other major investors in U.S. corporations. It was a promise of higher profits due to much lower labor costs. Before NAFTA, the only U.S. bilateral trade agreements were with Canada and Israel—nations with levels of economic development and average incomes comparable to ours. No such comparability existed between the U.S. and Mexico or China.
That’s still very much the case today. In the U.S., the median yearly income for residents (including those not in the labor force, chiefly children and the elderly) is $19,306. In Mexico, it’s $3,315. No reliable median income statistics exist for China, but its mean yearly income (“mean” is almost always higher than “median”) is $4,296. By way of contrast, the mean in the U.S. is $25,332, and in Mexico it’s $4,929.
Avoiding transoceanic supply lines and ending investment in companies that might be aiding the Chinese military aren’t the only reasons for corporate delinking. As the Chinese government moves closer to a surveillance-powered neo-Stalinism, a number of Western corporations and banks clearly sense that the political blowback from staying in China—and perhaps not just political—suggests that it may be time to move out. Many of them are building new production facilities in other East and South Asian countries, where workers’ wages are significantly lower than they are in both China and Mexico. In Vietnam, which is seeing a flurry of factory construction, the median income is $3,149 and the mean is $3,881. In India, the mean is a bare $1,314.
Note, also, that Vietnam is a one-party Leninist nation, and India, under the misrule of Prime Minister Narendra Modi, is careening toward a brutal and dangerous Hindu nationalism. (Note, too, that a number of these factories have been reported to be concealing the fact that they’re merely enhancing or just pushing through the supply chain goods actually produced in China.)
In other words, the vast majority of the Western world’s corporations, and most certainly the American ones, have not abandoned globalization of production, or cozying up to authoritarian regimes, precisely because it’s globalization strictly on their terms—of, by, and for their major investors. American workers will not be able to compete on the cost of labor with workers in Vietnam or Mexico any more than they could with workers in China. Back in 2006, economist Alan Blinder described the kinds of U.S. jobs that were potentially offshorable, which, based on his descriptions, I calculated to be roughly 50 million. That didn’t mean they’d all be offshored, of course; but some would, and that threat would suppress the wages of such workers in the U.S.
No autarkic solution will help American workers, either, as autarky—a completely self-sufficient economy—is an impossibility. What would help those workers is being able to wield enough power to compel corporations to ensure that the highly skilled production work is done domestically. That’s the kind of division of labor that German workers have often (not always) been able to persuade or compel their employers to adhere to, with the high-end, best-compensated labor done within Germany. Then again, Germany has done a far better job than we have of preserving worker power and collective (and even sectoral) bargaining. If you wonder why American corporate executives are free to locate production in foreign lands where governments suppress worker power, consider that they come from a country that, chiefly at their insistence, does that, too.
