From The New York Times, on rising Chinese export prices:
Markups of 20 to 50 percent on products like leather shoes and polo shirts have sent Western buyers scrambling for alternate suppliers ….. Already, the slowdown in American orders has forced some container shipping lines to cancel up to a quarter of their trips to the United States this spring from Hong Kong and other Chinese ports.
It’s time for state and local economic development agencies to start honing their import recapture strategies. By that, I mean the judicious use of loans and other aid to help rebuild and restart manufacturing production and jobs that were lost to foreign factories.
Yes, I know that sounds weird after all the manufacturing jobs that have been lost. Anecdotally, the price differential between China and the U.S. was on the order of 35%. Given the price jumps in the pipeline, all of a sudden the cost of U.S. production might be in spitting distance for some industries. That’s especially true since domestic manufacturers have the advantage of being close and flexible.
I’m talking both high- and low-tech production here. The question is which industries are ripe for import recapture, and how many jobs could be created. Here I’m going to tell you an important little secret -- you cannot rely on the BLS import price data to tell you where the gap has closed between import and domestic prices. Two reasons:
The BLS does not measure the difference between the price of imports and the price of the comparable domestic goods. Just doesn’t. Never has. It’s a gaping hole in the data.
The BLS does measure changes in import prices -- but very very badly (see here and the conference proceedings here). To understand how badly, take a look at this chart, which supposedly tracks the price of Chinese imports.
[Click to enlarge]
If you believe this data, the price of Chinese imports into the U.S. has been effectively flat (plus or minus no more than 4%) for the past seven years, through the biggest import boom in U.S. history, the biggest financial crisis in 75 years, and a 25% appreciation of the Chinese yuan against the dollar. As the saying goes: This does not make sense.
I’m currently figuring out how to develop a database of import-domestic price gaps, so we can assess where an import recapture strategy makes sense. If you are interested in working with me on this, drop me a note.