As global stock markets rebounded Tuesday despite China’s continued selloff, the focus now is on China’s economy and whether leaders can engineer a smooth slowdown. With little hope of a surge in consumer-led domestic demand, China is turning to its old standby model of exporting more goods.
Amid this backdrop, at least one pocket of American manufacturing isn’t waiting breathlessly for details on the health of China’s economy. Some small U.S. manufacturers have found a niche selling unique “Made in USA” goods in locations from Dubai to Hong Kong. Years ago, these small companies saw Chinese wages rising steadily. They did the supply chain math and made a bet to make products on U.S. soil. And are now reaping the rewards of not being tethered to China’s wage pressures, or the costly travel and time associated with transporting goods from Asian manufacturing hubs.
These local U.S. companies noticed manufacturing price shifts in China and the U.S., and made a bet to play the global market with a domestic hand. And for some of these businesses, the gamble so far is paying off.
“Our Asia market is strong,” says Bryan Scott, owner of Barn Light Electric, a small lighting manufacturer with plant operations in Titusville, Florida, and Melbourne, Australia. Barn Light Electric specializes in American-made warehouse style lighting. Think cool copper lighting fixtures, porcelain lamp shades and unique wall sconces.
“We do a lot of five-star hotels and establishments in China, including Hong Kong,” Scott says. His Melbourne plant with 15 employees serves the Asia market. About 130 additional workers are based in the U.S.
Scott’s take on China’s turmoil? “China seems to be devaluing its currency in an attempt to get their prices back down,” Scott said. “It’s an incentive to lure manufacturing back to China.”
‘Old growth model’
Cheap goods made in China, of course, remain a fixture on global store shelves. And weak Chinese consumer demand could potentially hurt imported goods into China. But for now, some companies like Barn Light Electric are avoiding China’s economic slowdown.
Amid three days of Chinese market turmoil, China’s central bank on Tuesday cut interest rates and lowered the amount of reserves that banks must hold for the second time in two months to boost economic activity.
About two week ago, the People’s Bank of China unexpectedly depreciated the yuan by nearly 2 percent to help lift exports. “They are switching back to their old growth model that includes exporting business,” said Lei Mao, assistant professor of finance at the Warwick Business School.
The bigger question is what’s China’s long-term strategy? “In the long-term, I think there is a serious problem for the global economy because new demand in China is becoming less likely, and as it is such a big engine driver for the world economy,” Mao said.
A lesson in global, local business
Mao added, “We are seeing capital drain out of the country and companies with exposure to the Chinese market will suffer.”
But businesses like Barn Light Electric that have found global niches for unique American goods are somewhat buffered from China’s broad slowdown.
Roughly a decade ago, Bryan Scott and co-owner Donna Scott scoured U.S. trade shows for U.S. companies specializing in making lighting-related pieces including stamped and molded metal parts. Most of the pieces at the time were available overseas. And transport on shipping containers costs time and money.
“Now those pieces are available here in the U.S.,” Bryan Scott said. “Companies here have set up that marketplace.”
Overall, U.S. manufacturing still maintains a very significant cost advantage over certain economies including Germany, France, Japan, Australia and Brazil, and manufacturers are unlikely to shift production to other nations, according to a July update on global manufacturing from the Boston Consulting Group.
The U.S. also continues to reap benefits from low-cost energy, with massive North American reserves providing long-term energy-cost stability. Crude oil prices, for example, recently were trading around the $40 a barrel, down from around $92 a barrel a year ago.
And while China’s economic slowdown has unnerved financial markets and raised worries about emerging economies, China remains the world’s second-largest economy.
“Companies are getting worried about what is the actual growth rate in China,” said Hal Sirkin, a senior partner at the Boston Consulting Group. “But companies will be thinking twice about whether they move out of China in terms of manufacturing.”
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