The Pearl River Delta: the Achilles Heel of US protectionism

The Pearl River Delta region in China’s Guangdong province remains the manufacturing hub of the world; even if low-end labour-intensive processes are outsourced to Vietnam and Bangladesh, the goods often come through the area for logistical reasons. The densely urbanised region is a vast and highly efficient ecosystem for designing, prototyping, customising, manufacturing and shipping almost anything at dramatically lower cost and faster speed than anywhere else: it is cheaper to ship to Los Angeles from the city of Shenzhen than from San Francisco!

In our view, President Trump would need to introduce very stiff tariffs for any of this production to shift to the US, but the majority would probably still remain in China, leading to a rise in the end price instead.

Interestingly, end-assembly is the most labour-intensive part of the production process, so bringing this part back to the US is where the labour cost differential would be most apparent. There is also the question of whether the US really wants manufacturing – it is a messy business, as can be seen from the smog and the waste-management trucks on Guangdong’s highways.

While 3D printing has reduced dramatically in cost, it is far from threatening mass production, which has also seen big falls in cost, particularly for items such as printed circuit boards and computer chips. Chinese companies are increasingly investing in innovation, and while one leading white goods factory that I recently visited was 20% automated some pilot lines now have 60-70% automation and this is clearly the direction of travel.

Rob Marshall-Lee, Newton, a BNY Mellon Company

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