There's A Crisis That Is Quietly Creating New Economic Superpowers...

Summary

This 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

00:00

🌏 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.

05:01

📉 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.

10:02

🚀 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.

Keywords

💡Reopen

The term 'reopen' refers to the process of starting operations again after a period of closure or inactivity, often due to external factors such as a pandemic. In the video, it is used to describe China's factories resuming work after the COVID-19 outbreak, which is a critical point in the narrative as it sets the stage for discussing the shifts in global manufacturing dynamics.

💡Economic Power Shift

Economic power shift denotes a change in the distribution of economic influence and dominance among different countries or regions. The video discusses how the balance of global economic power is moving away from China towards other nations, indicating a broader theme of changing economic landscapes and the rise of new manufacturing hubs.

💡Manufacturing Prowess

This term refers to the skill, capability, and reputation a country has in the manufacturing sector. The video script highlights how other countries are beginning to rival China's manufacturing prowess, which has been a cornerstone of its economic success.

💡Economic Zones

Economic zones are designated areas where special economic policies are implemented to attract foreign investment and trade. The script mentions how China built economic zones with ports and factories to boost productivity, which is a key strategy in its economic development and a model that other countries might emulate.

💡Fortune 500 Companies

Fortune 500 companies are a list of the 500 largest corporations in the United States, ranked by total revenue. The video uses this term to illustrate the scale of international business that has been outsourcing manufacturing to China due to cost advantages.

💡Low Labor Costs

Low labor costs refer to the relatively low wages paid to workers, which can be a significant factor in a country's competitiveness in manufacturing. The script explains how China's economic growth was initially fueled by low labor costs, which attracted manufacturing but also led to challenges as wages increased.

💡Tariffs

Tariffs are taxes imposed on imported goods, which can affect trade flows and economic relationships. The video discusses how U.S. tariffs on Chinese imports impacted trade and manufacturing, forcing companies to seek alternative sourcing countries.

💡Geographical Diversification

Geographical diversification is the strategy of spreading business operations across different regions to mitigate risk and dependency on a single location. The script mentions how companies are moving manufacturing out of China to diversify their supply chains, which is a response to the risks highlighted by the pandemic and trade tensions.

💡Vietnam

In the context of the video, Vietnam is highlighted as a country that has been quietly experiencing an economic boom and is becoming a significant player in the global manufacturing sector. The script provides Vietnam as an example of a nation that could benefit from the shift in manufacturing away from China.

💡Mexico

Mexico is mentioned in the script as another country that stands to benefit from the decline in China's manufacturing dominance. It is cited as a potential new manufacturing hub, especially for companies looking to move production closer to the U.S. market.

💡Infrastructure

Infrastructure refers to the basic physical and organizational structures needed for a country or region to function, such as transportation and communication systems. The video discusses India's infrastructure challenges as a barrier to its manufacturing potential, despite having a large workforce and low labor costs.

💡Manufacturing Hub

A manufacturing hub is a region or country that has become a center for manufacturing activity. The script contemplates which countries might become the next manufacturing hubs as the world shifts away from reliance on China, with Vietnam, Mexico, and India being potential candidates.

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

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