There's A Crisis That Is Quietly Creating New Economic Superpowers...
Summary
TLDRThis video explores the shifting landscape of global manufacturing as China's dominance faces challenges. With rising labor costs and geopolitical tensions, countries like Vietnam, Mexico, and India are emerging as potential new manufacturing hubs. The script delves into economic transformations, the impact of tariffs, and the pandemic's role in accelerating diversification away from China. It ponders the future of manufacturing, suggesting that while China's reign may be tested, its manufacturing prowess is unlikely to wane soon.
Takeaways
- 🌏 China's economic policy shift from communism to capitalism in the 1970s led to the creation of economic zones that attracted foreign trade and investment, fueling China's economic boom.
- 🏭 The rise of China as a manufacturing powerhouse was due to its low labor costs, advantageous tax laws, and import-export efficiencies, which made it the go-to place for global manufacturing.
- 📉 However, China's manufacturing output began to decline in 2016 for the first time due to rising labor costs, which reduced the cost advantage of manufacturing in the country.
- 💹 The average yearly wage of a Chinese worker has increased dramatically from $150 in 1990 to around $13,500 in recent years, reflecting the country's economic growth but also impacting its manufacturing competitiveness.
- 🛑 The U.S. imposing tariffs on Chinese imports in 2019 further contributed to a decrease in manufacturing output and pushed companies to seek alternative manufacturing locations.
- 🌐 Privacy concerns and geopolitical tensions have led to a global push to reduce reliance on Chinese technology and incentivize domestic production.
- 🚫 The COVID-19 pandemic exposed the risks of over-reliance on China for essential goods, as shutdowns in China caused shortages worldwide.
- 💼 Companies are increasingly recognizing the need for diversification in their supply chains, leading to a strategic shift away from a heavy reliance on China.
- 🇻🇳 Vietnam has been quietly experiencing an economic boom, with manufacturing growth spurred by companies moving production there from China, transforming it into a middle-income country.
- 🇲🇽 Mexico is emerging as a significant beneficiary of the shift in manufacturing, with estimates suggesting billions of dollars in redirected Chinese manufacturing investments.
- 🇮🇳 India, with its large population and low labor costs, is positioned to potentially expand its manufacturing sector, especially with investments from major companies like Apple.
- 🔮 The future of global manufacturing may see a diversification of hubs, with countries like Vietnam, Mexico, and India rising, and potential advancements in AI and robotics changing domestic production capabilities.
Q & A
What economic policy shift did China begin in the 1970s?
-China began shifting its economic policy away from communism and more towards capitalism, building specific economic zones to maximize productivity and efficiency.
Why did many Fortune 500 companies start manufacturing their products in China?
-China offered similar quality manufacturing at a substantially lower price due to extremely low wages, favorable tax laws, and import-export efficiencies.
How did China transform its economy from the 1970s to the 2010s?
-China transformed from an impoverished nation of farmers to having the second-largest economy in the world by manufacturing one-third of all products on the planet.
What significant change occurred in the average yearly wage of a Chinese worker from 1990 to the present?
-The average yearly wage increased from about 150 USD in 1990 to around 13,500 USD, marking an increase of over 8,500%.
Why did manufacturing output in China decrease for the first time in 2016?
-The increase in labor costs made manufacturing in China more expensive, leading to a 2% decrease in manufacturing output.
What impact did the United States imposing tariffs on Chinese imports have?
-It caused a 7% decrease in Chinese imports to the US and forced companies to look for product sourcing in other countries.
How has the COVID-19 pandemic affected global reliance on China for manufacturing?
-The pandemic exposed the risks of over-reliance on China, leading to shortages in essential goods and delays in various industries, prompting a shift in manufacturing strategy.
What incentive plan did Japan announce to move their manufacturing base out of China?
-Japan announced a 2.2 billion dollar incentive plan to move their manufacturing base back into Japan and diversify into other Asian countries.
What economic transformation has Vietnam experienced in the last two decades?
-Vietnam transformed from extreme poverty to a middle-income country with a GDP per capita increase from 390 USD to roughly 3,000 USD within 20 years.
How has India's economic growth been primarily driven?
-India's economic growth has been driven by service-based industries like banking, retail, and information technology, rather than manufacturing.
What potential does India have in becoming a manufacturing superpower?
-India has a large young workforce and extremely low labor costs, which could make it an attractive manufacturing hub if it addresses its infrastructure challenges.
Outlines
🌏 Shift in Global Manufacturing Power
This paragraph discusses China's transition from a communist to a capitalist economy in the 1970s and its subsequent rise as a manufacturing powerhouse. It highlights the low labor costs and favorable policies that attracted global companies to manufacture in China, leading to its dominance in global manufacturing by the 2010s. However, the narrative also points out the challenges that have emerged, such as rising wages, geopolitical tensions, and the impact of tariffs, which have contributed to a decline in China's manufacturing output and a potential shift in global economic power towards other nations.
📉 Impact of Pandemic and Strategic Reevaluation
The second paragraph delves into the effects of the COVID-19 pandemic on global supply chains, emphasizing the reliance on China for essential goods and the subsequent shortages experienced by various industries. It outlines the strategic reevaluation by companies and countries to diversify their manufacturing bases, with Japan's announcement of a significant incentive plan to move manufacturing out of China and the growing interest in other countries like Vietnam, Mexico, and India as alternative manufacturing hubs.
🚀 Emerging Economies and the Future of Manufacturing
The final paragraph explores the potential of countries like Vietnam, Mexico, and India to become the next manufacturing superpowers. It details Vietnam's rapid economic growth, Mexico's increasing manufacturing imports to the U.S., and India's potential due to its large young workforce and low labor costs. The paragraph also speculates on the future of manufacturing, considering advancements in AI and robotics, and hints at Africa as a possible future economic battleground between the U.S. and China.
Mindmap
Keywords
💡Reopen
💡Economic Power Shift
💡Manufacturing Prowess
💡Economic Zones
💡Fortune 500 Companies
💡Low Labor Costs
💡Tariffs
💡Geographical Diversification
💡Vietnam
💡Mexico
💡Infrastructure
💡Manufacturing Hub
Highlights
China's reopening of factories and return to work is not the same due to a shift in global economic power.
Rising nations are taking away some of China's manufacturing prowess, potentially creating new economic superpowers.
China's economic policy shift from communism to capitalism in the 1970s led to the creation of economic zones for increased productivity.
Fortune 500 companies started manufacturing in China due to lower costs and similar quality to Western production.
China's manufacturing dominance was attributed to low wages, tax laws, and import-export efficiencies.
By the 2010s, one-third of global products were manufactured in China, transforming it from an impoverished nation to the world's second-largest economy.
China's average worker wages increased from $150 in 1990 to $13,500, impacting the cost of manufacturing in the country.
A decline in China's manufacturing output began in 2016, the first in its modern history, due to rising labor costs.
US tariffs on Chinese imports in 2019 led to a 7% decrease and companies seeking alternative manufacturing locations.
Privacy concerns and geopolitical tensions have led to a push against Chinese technology and incentivized domestic production.
The COVID-19 pandemic exposed reliance on China for essential goods, causing shortages and supply chain disruptions.
Japan announced a $2.2 billion incentive plan to move manufacturing out of China, with 37% of companies surveyed planning relocation.
Vietnam has experienced an economic boom, with GDP per capita rising from $390 in 2000 to $3,000, making it one of the fastest-growing economies.
Mexico has been benefiting from China's manufacturing downturn, with an estimated $12-19 billion in redirected manufacturing annually.
India's economy has grown significantly since 2002, with a focus on service industries rather than manufacturing.
India's cellphone manufacturing industry has grown exponentially, becoming the world's second-largest producer.
India's potential as a manufacturing hub is hindered by infrastructure challenges but has advantages in labor costs and a young workforce.
The future of global manufacturing may involve AI and robotics, or a shift towards Africa as the next economic battleground.
Transcripts
as China begins to reopen its factories
and return back to work what they are
returning to will not be the same
despite China being the world's economic
darling for the past 40 years the
balance of the world's economic power
has begun to shift towards some places
that you might not expect in fact we are
already starting to see some signs of
other nations around the world rising up
in order to take away some of China's
manufacturing prowess away from them and
who knows we might be witnessing the
creation of the next generation of
economic superpowers right in front of
our very eyes but the reason that this
is happening is a little bit complex it
started a few decades ago in 1970s China
when the country began shifting its
economic policy away from communism and
more towards capitalism they soon began
building specific economic zones where
massive ports and factories could be
built that would maximize productivity
and efficiency and once these economic
zones were opened up to foreign trade
and investment China's economy began
exploding in the 1980s many Fortune 500
companies began having their products
manufactured in China because China
could make their products with a similar
level of quality but for a substantially
lower price than if they were to have
been manufactured in the West and this
was largely because of the extremely low
wages that Chinese workers made along
with other factors like tax laws and
import-export efficiencies so all of a
sudden if a competitor chose to
manufacture their products outside of
China they simply could not compete on
price which would likely have made them
go out of business so that is when
everything began getting made in China
by the 2010s one-third of all products
on the planet were manufactured in China
and within the span of 50 years China
had turned itself around from an
impoverished nation of farmers to a
nation that has the second largest
economy in the world behind the United
States now despite all of this success
there have been a few strange things
that have happened over the past few
years now here's a question for you what
happens when a country who builds its
economy based upon low labor costs all
of a sudden becomes very wealthy
well here's what happened to China in
1990 the average yearly wage from a
Chinese worker was about a hundred and
fifty dollars u.s. by two thousand five
it was two thousand eight hundred
dollars in 2015 it was eight thousand
nine hundred dollars and as of this year
the average Chinese worker makes around
thirteen thousand five hundred dollars
that is a massive increase where we have
seen the average wage of a manufacturing
worker increased by over eighty five
hundred percent over the last thirty
years and what this means today is that
the cost of making products in China has
become a lot more expensive than it used
to be companies can't make products for
an eighty percent discount in China
anymore like they used to and because of
this we actually began to see a decline
in manufacturing in China in 2016 where
for the first time in the country's
modern history their manufacturing
output actually decreased by two percent
but the success of China's economy was
only the first factor coming into play
when talking about the decrease in its
manufacturing output after 2016 China
once again saw modest increases in
manufacturing output until the United
States imposed tariffs on imports from
China this caused a decrease in Chinese
imports to the US by seven percent in
2019 and forced many companies to begin
looking for product sourcing in other
countries and if that wasn't enough
privacy concerns and tensions between
China and the Western world have been on
the rise ever since the country began
taking over part of the world's tech
sector and ever since then governments
around the world have been actively
trying to push Chinese technology out of
their countries while also incentivizing
businesses to make their products
domestically instead of China in fact
just last week the Department of Justice
in the United States has requested that
the FCC terminate China's telecom
authorization in the United States
citing it as a national security risk
and all of these things that I just
mentioned from rising labor costs to
geopolitical issues have led us to today
and the pandemic you see even though
this China sourced manufacturing has
been slowing down over the past decade
the country still remains the largest
manufacturer in the world so once the
pandemic rose out of Wuhan and caused a
shutdown of China's manufacturing sector
many countries began to run out of
essential goods that they needed simply
because they relied upon China to
produce them and had no backup plan so
for example China is the leading
manufacturer of medical equipment in the
world so when the world needed an
increase in the supply of masks
ventilators and gloves they could no
longer get them from their relied upon
manufacturer China is also the second
largest producer of drugs and medicinal
ingredients in the world so when the
pandemic hit roughly 100 commonly used
drugs were reported to be in a shortage
by the FDA and these shortages didn't
just hit the medical sector but they hit
virtually every other industry all of a
sudden small businesses looking to get
inventory for tech fashion or any other
kind of business began to see one to two
month long delays on their orders and
this seemed to be the final straw for
most of the world to change their
manufacturing strategy you see many
companies in the last several months
have realized that they had too many
eggs in one basket and relied too
heavily upon one nation in order for
their business to run properly so we
have started to see a shift last week
Japan announced a 2.2 billion dollar
incentive plan to move their
manufacturing base out of China and into
Japan while also diversifying into other
Asian countries and a recent report from
Tokyo found that roughly 37 percent of
more than 2600 companies surveyed said
that they were planning to move at least
part of their manufacturing to a country
outside of China now that brings up the
next question as China's manufacturing
sector beacons to shrink and every other
nation around the world begins to look
to other countries to source their goods
from who will be the biggest
beneficiaries of this shift out of China
well the first of which is another Asian
country that has been quietly going
through an economic boom over the last
several decades in the year 2000 Vietnam
was a country that was experiencing
extreme poverty throughout its
population of nearly 100 million people
in fact the GDP per capita of Vietnam
was a paltry 390 dollars at the time
then they were dealt a gift from the
economic gods as China's population
began to become somewhat wealthy in the
2000s apparel companies like Nike began
building factories in Vietnam because it
became substantially cheaper to
manufacture some products in Vietnam as
opposed to China and in the following
decades many other companies began to do
the same as China's wealth began to
accelerate into the 2010s Vietnam's
manufacturing sector began to accelerate
as well today Vietnam is now considered
a middle-income country with a GDP per
capita of roughly $3,000 and keep in
mind that this shift from extreme
poverty to middle income has occurred
within just 20 years making it one of
the fastest growing economies in history
and if this trend were to continue we
could see a Vietnam surpassed the likes
of the United Arab Emirates Singapore
Iran and even Hong Kong in terms of
economic power within the next several
decades another country that has
benefited a lot from China's
manufacturing downturn especially over
the last two years has been Mexico
tempest capital has estimated that
Mexico will be receiving between 12
billion and 19 billion dollars in
Chinese manufacturing redirects per year
for the near future and in fact one
survey of a hundred and sixty executives
by fully and Lardner suggested that
two-thirds of large corporations in the
United States were planning on moving at
least part of their manufacturing base
out of China and into Mexico within two
years now who knows how many of these
companies will actually follow through
with their plans but there's a lot of
data that is showing how Mexico is
already becoming a bigger manufacturing
hub of the world for example in 2017
Mexico's exports to the United States
have increased by roughly fourteen
percent to a whopping 320 billion
dollars and just in perspective that is
about 42 percent of what China exports
to the United States so they're still
quite a ways away but they are gaining
ground every single year but arguably
one of the most intriguing countries
that has benefited in recent years is
that
India India has about the same
population as China with 1.3 billion
people but the difference is that India
is still largely an agricultural society
with a much poorer infrastructure
roughly half of the workforce in India
still works in some way in the
agricultural sector and just for
comparison roughly five percent of the
American population works in agriculture
regardless since 2002 India's economy
has grown from a GDP per capita of 470
dollars to roughly two thousand one
hundred dollars in 2020 and this
economic growth has resulted in India
lifting more than 300 million of its
citizens out of poverty over the last 18
years but here's the thing unlike a
country such as Vietnam India's growth
has not come from manufacturing that has
actually come from service based
industries like banking retail and
information technology except there was
one economic experiment that began being
run at the start of 2014 and that was
cellphone manufacturing so at the start
of 2014 India was manufacturing about 10
million cellphones a year but by the end
of 2019 India was producing roughly 150
million cell phones per year and quickly
became the second largest cellphone
manufacturer in the world and despite
this massive ramp up in manufacturing of
cell phones India's infrastructure is
still seen as too inadequate right now
for them to become the next China but
with big investments from companies like
Apple who have begun making some of
their iPhones in cities like Chennai we
might see an expansion of India's
manufacturing sector in the near future
and one key advantage that India has is
a large young workforce and an extremely
low cost of labour currently in India
the average manufacturing laborer makes
about $5 per day meanwhile the average
Chinese manufacturing labor makes about
28 dollars per day this has made India a
more attractive place for some companies
to take a risk and manufacture their
products in India even if they run into
some infrastructure problems along the
way so if India were to fix their
infrastructure and capitalize on
manufacturing in the same way that China
did
in the 1990s we might see India become
the third true economic superpower of
the world behind the united states and
china but again that is a big if so even
though there are some countries that are
benefiting from China's downturn in
manufacturing that does not mean that
China will be giving up its mantle for
being the world's Factory anytime soon
it looks like we might be at least
twenty years away before another country
catches up to the likes of China in
terms of manufacturing output but this
brings up the question if the likes of
Vietnam Mexico or India become the new
China and reach a wealth standard that
China reached in the 2010s then what
will the next manufacturing hub be well
some say that within 50 years with
enough advancements in AI and robotics
many products will be produced
domestically by each country but if that
doesn't happen within the next half
century there is an entire continent
with a large population and cheap labor
force that is already being viewed as an
economic battleground between the United
States and China but we will save the
story of the economy of Africa for
another time so I'd like to ask you guys
what do you think is going to happen to
the manufacturing sector around the
world in the coming years do you think
China will have a downturn and who do
you think will become the next
manufacturing superpower of the world
let me know in the comments down below
and if you liked this video please check
out my documentaries playlist where I
have a bunch of other videos just like
this ready for you to watch so please
have that subscribe button hit that like
button if you liked this video and make
sure to click on my next video anyways I
will see you guys in just a few seconds
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