European and North American manufacturing to benefit from high oil prices
These days it is impossible to walk into a shop and not find a large percentage of products manufactured -or at least assembled- in China. Chinese labour costs are so lucrative that factory capacity has been transferred with the same ease that service contracts were awarded to Indian companies.
The way things develop with rising oil prices proves yet one more time that not all moves are as time-proof as they initially seem. As Treehugger reports, container ship costs between southeast Asia and the east coast of the US have quadrupled and transport costs to the EU and the US have since 2002 risen from 3% to 9% of the total cost.
So is that good or bad? Overall, I am firmly against the view that this is a hit for the globalised economy. This process has started centuries ago, has accelerated in the 20th century and has gone already far enough to be irreversible -under normal peaceful circumstances. So if buying south American fruit in a north European supermarket is your thing, I do not feel sorry for you at all. Transport requires fuel, and fuel in turn pollutes independently of what we pay for it. So finally people pay notice, obviously not because of the environment but because of their wallet. It was about time…
Some countries have been more resistant than others to transfer factories to the Far East. Such examples are Germany and Italy, where many companies have opted to create a factory in China but keep their capacity at their home base. This has of course led to the restriction of low or zero growth at home, but under current conditions it is a life saving scenario as options have been left wide open. At the same time, east EU countries -for example Poland- will benefit immensely as they have so far been in more direct competition for investment with China due to low labour costs.
The recent absorption of eastern European countries by the EU has cushioned the shock from Chinese imports with satisfactory investment levels and resistance to transfer of plants to far off countries. Simultaneously, the significant manufacturing capacities of Turkey and Russia are bound to profit thanks to their local demand and proximity to the EU.
The impact of cheap Asian products has been much greater in North America, where the market has been virtually flooded by cheap Asian imports. As an immediate solution, the unnecessarily overlooked Mexican option again becomes important a few years after the start of NAFTA. But here it is clear that a lot has to be done for US manufacturing to revert to former glories.
Naturally, very few situations are win-win cases. And on a worldwide scale raw material costs and commodities are bound to get harder to get due to the extra transport costs. But overall, I believe it isn’t a bad thing to have some deceleration of the breathtaking changes of the 90s and the current decade. As developed economies were starting to adjust to the fact of more imports, it will take time to work out corrective action. Of course, the price of oil could change again and create havoc to any planning. A middle scenario of expensive but not excessive oil price is in my opinion the best one. Do not think I am looking forward to pay more at the pump, but seriously, as I said earlier, it is the only way -via financial consequences- for people to take notice of the impact that their actions have and the best incentive for the creation of demand of alternatives to the oil based economy.
