Location, Location, Location Matters in Manufacturing

The Wall Street Journal writes about firms adding production capacity in the United States, but this one point only militates in favor of U.S. production in the very short term:

“We find it as cheap to manufacture in the U.S. as China,” Carlisle Chief Executive Dave Roberts wrote in an email. “We will still manufacture in China, but the idea would be to manufacture product for Asia in Asia, for the U.S. in the U.S.”

The thing about this is that Asia is where all the people are. All else being equal, firms have a good reason to want to locate production near their customers and their customers will increasingly be in Asia. It is an interesting fact that various strands of misguided public policy kept Asia largely locked out of prosperity throughout the 20th century, but that was never a sustainable trend. First Japan, then South Korea and Taiwan and Singapore, and now China and the others are getting on the prosperity chain. Which means that if you manufacture product for Asia in Asia, then you’ll be mostly manufacturing in Asia. And if for whatever reason of logistics you can only manufacture in one place, then you’ll be manufacturing in Asia. Labor costs matter in life, but Asia’s labor cost advantage will prove fleeting—that’s what the WSJ article is about. But the long-term story is that insofar as many more people live in Asia than live in North America, Asia rather than North America will be the hub of economic activity. For the short-term, our greater wealth means the U.S. market is bigger than the Chinese market. But that’s not going to last very long unless we take deliberately steps to allow more people to move here.