Made in China - Earphones, laptop and an aircraft

I was on a flight yesterday. Took this picture. 

The earphones provided on the flight above had this characteristic - "Made in China". It was placed on a laptop that had a similar characteristic. I wondered that in a few years if the Airbus-Boeing dispute reached an impasse, the aircraft I would be travelling in would probably also have the same characteristic.Whether that is a positive development is an entirely different debate.

Things may be increasingly "Made in the World" but "Made in China" is still evident.

International supply chains and Made in the world

Richard Baldwin has made an interesting analysis for the reasons for tariff liberalisation in developing countries since the late 1980's. In his "Unilateral tariff liberalisation" he proposes that tariff liberalisation in developing countries have taken place primarily due to the new reality of international supply chains that they are part of.

The two graphs below indicate the reduction of tariffs which were earlier a form of protecting local industry.

What caused this reduction? negotiations to reduce tariffs or trade realities. The explanation offered is the reality of international supply chains. The joining of international supply chains as well as the end of "infant-industry" protection seem to spark this reduction of tariffs.

"The second unbundling revolutionised development options facing poor nations – especially those geographically close to industrial powerhouse nations like Japan, the US and Germany. Rather than building their own supply chains behind tariffs walls over a span of decades (as was done in the US, Germany, Japan, Korea and others), the second unbundling allowed nations like Thailand and the Philippines to set up sophisticated manufacturing facilities in a matter of months by joining a supply chain.

The catch was that tariffs – and many other 'pro-industrialisation' policies from the pre-ICT era – turned out to be hindrances to joining supply chains. In reaction, many developing nations dropped the old policies to attract offshored manufacturing jobs and investment."

I am not an economist but I found this analysis interesting. the reality of international supply chains and their impact on tariffs is evident. Have the global trade  rules taken note of the reality of international supply chains? "made in the World" is the new reality rather than Made in China,  U.S. or Germany. While the stage in international trade law has shifted to non-tariff measures as new forms of protectionism gain ground, would the reality of global supply chains require a need for a relook at international trade regimes?  Another question is what explains the rise in "protectionist" measures, albeit non-tariff, in recent times though the reality of the global supply chains exist? While tariffs have reduced, non-tariff measures like technical regulations and other standards seem to have become the new norm.

Reverting back to the supply chain reality, Scott Lincicome has brought out the "Made in the World" concept aptly in his blogpost. I am borrowing the image used there (could not resist it) for its sheer clarity in explaining new realities:

The new reality of international supply chains?

Olympics, "Made in China" and a furore

With the Olympics a few days away, a controversy has erupted in the U.S. over China made uniforms that the U.S. delegation is going to wear to London. Who would have ever drawn a connection between Olympics and "protectionism"?

Critics in the U.S. have objected to the U.S. Olympic Association having procured the official dress of the U.S. delegation to the Olympics from China.It had to be China! They have insisted that U.S. sportspersons should wear uniforms and dresses made in the U.S. rather than from outside.

An interesting fact is that though the dresses were made in China, it was by a New York based American company, Ralph Lauren. There were angry calls of rejecting them with some representatives saying:

“I am so upset that I think the [U.S.] Olympic Committee should be ashamed of themselves, I think they should be embarrassed, I think they should take all the uniforms, put them in a big pile and burn them and start all over again.” 

Cafe Hayek has an interesting point - are the garments "Made in China" at all? Echoing a letter to the WSJ, it  signifies a "Made in the World" reality rather than being made in a particular country:

"As you suggest, the 2012 U.S. Olympic uniforms are labeled “Made in China” simply because workers in China supplied the relatively low-valued-added service of stitching together inputs from all over the globe – including from America – into their final form as Olympic sportswear.  The unfortunate convention of identifying the country of final assembly as the country in which a good is “Made in” masks the fact that nearly all goods today are “Made Everywhere on Earth.”

China, expectedly, reacted rather strongly calling the attitude of the U.S. "hypocritical" and "irresponsible".It was reported here and here.

Some thoughts:

I wonder what percentage of Olympic dresses that sports delegations from across the globe wear   at the Olympics would belong to the country of the sportsperson? What about the sports equipment? Which country dominates exports of sport equipment? Should countries shun importing the best state of the art equipment for their respective teams and instead rely on locally produced equipment? Unthinkable? Olympic spirit and globalization go hand in hand?


Writing in the CATO Institute blog Daniel Ikenson has this thoughtful retort on the issue:

"If you are still not convinced that our policymakers’ objections are inane, consider this: As our U.S. athletes march around the track at London’s Olympic stadium wearing their Chinese-made uniforms and waving their Chinese-made American flags, the Chinese athletes will have arrived in London by U.S.-made aircraft, been trained on U.S.-designed and -engineered equipment, wearing U.S.-designed and -engineered footwear, having perfected their skills using U.S.-created technology."

The WTO website coincidentally published today the Panel report on the China Electronic Payment case that the U.S.  had filed against it which China lost. More fodder for the critics of  global trade on both sides? The USTR website has the official response to the Panel Report:

"“This decision will help U.S. companies and increase American jobs as a more efficient credit and debit payment system in China enables consumers to buy more goods, including quality, made-in-America products,"said Ambassador Kirk."

"Made in America" products for consumers in China but no "Made in China" products for US Olympians?


Update: Ralph Lauren calling itself a "proud outfitter of Team USA" released a rather unapologetic statement about the controversy:

"“For more than 45 years Ralph Lauren has built a brand that embodies the best of American quality and design rooted in the rich heritage of our country. We are honored to continue our longstanding relationship with the United States Olympic Committee in the 2014 Olympic Games by serving as an Official Outfitter of the US Olympic and Paralympic teams.

Ralph Lauren promises to lead the conversation within our industry and our government addressing the issue of increasing manufacturing in the United States and has committed to producing the Opening and Closing ceremony Team USA uniforms in the United States that will be worn for the 2014 Olympic Games.”

What next? 

Made in the World

(Stoyan Nenov/Reuters. An assembly line at Great Wall plant, which turns out three models, near Lovech, Bulgaria.)
The NYT had this piece on cars from China but assembled in Bulgaria.

"These were the first Chinese cars built in Bulgaria. Late in 2009, Great Wall Motor started talks with a potential Bulgarian partner for construction of an assembly plant, its first in Europe, on abandoned farmland outside Bahovitsa, a quiet village near Lovech in northern Bulgaria."

In the context of China, this is a rare occurence since one would imagine the product would be produced in China. Is this another example of a trend of what the WTO calls "Made in the World"?

Explaining the "Made in the World" Initiative, the WTO website states:

"Today, companies divide their operations across the world, from the design of the product and manufacturing of components to assembly and marketing, creating international production chains. More and more products are “Made in the World” rather than “Made in the UK” or “Made in France”. The statistical bias created by attributing the full commercial value to the last country of origin can pervert the political debate on the origin of the imbalances and lead to misguided, and hence counter-productive, decisions. The challenge is to find the right statistical bridges between the different statistical frameworks and national accounting systems to ensure that international interactions resulting from globalization are properly reflected and to facilitate cross border dialogue between national decision makers."

It is more of a statistical tool to analyse the value addition to a product in different countries and the complex nature of world trade. The interconnectedness and complex nature of global supply chains is sought to be captured by trade statistics to actually depict the nature of the product in terms of the value addition. This undoubtedly questions the notions of a product of being made in a particular country vis a vis being made in different parts of the world. Richard A Mc Cormack concluded that by this initiative the WTO is one step closer to eliminate the country of origins labelling.

Michele Nash-Hoff is severely critical of this initiative in this piece titled "Changing to WTO's 'Made in the World' Labeling Would Harm Americans" in the Huffington Post where she avers:

"This Initiative could have dire consequences for America's manufacturers and consumers. For manufacturers, it could eliminate one of the options allowed by the WTO -- filing a charge for product "dumping" against another country to have countervailing duties applied against that country. For consumers, "Made in the World" labels wouldn't allow you to protect your family from the tainted, harmful, and even life threatening products coming from China. You wouldn't be able to support saving and creating jobs for other Americans by buying "Made in USA."

Trade Diversion clarified the position of the "Made in the World" exercise in this blogpost with a clarification from the WTO. Today, a "Made in X" product at times evokes strong, domestic, protectionist views. Will the "Made in the World" label lessen this possibility? Will it be a precursor to increased international trade since the resistance to products from particular countries will reduce? It would also be interesting to see how much of products traded actually fall under this category. Is it restricted to only a certain class of products? The country of origin labelling will have to remain for the remaining products. The Agreement on Rules of Origin is not going away anywhere in a hurry.