MANUFACTURING IS ALL OVER THE PLACE / THE FINANCIAL TIMES COMMENTARY & ANALYSIS ( A MUST READ )

Manufacturing is all over the place

By Gillian Tett

Published: March 18 2011 22:09

Last week I popped into the American Girl store in Manhattan, the giant consumer temple that sells wholesome “all-American” dolls and clothes. As I queued to buy 6in replicas of a cheerleader costume and football suit, I could not help but chuckle: between the red, white and blue, there was a tag saying “Made in China”. Those American Girls were not so “American” after all.


It is a telling metaphor for a much bigger economic, cultural and political dilemma stalking the western world. Over the past decade, a growing proportion of the manufacturing processes that used to occur in the US and western Europe have moved elsewhere. Last week, for example, the economics consultancy IHS Global Insight calculated that in 2010 China displaced America as the largest manufacturer in the world – the first time that the US has lost this top slot for 110 years.


And the list of goods involved in this shift is growing longer by the day. According to a recent piece of analysis by Newsweek magazine, a host of seemingly American items are no longer produced in America, such as Barbie dolls, Hummers, gumball machines, Wurlitzer jukeboxes, Levi’s jeans and Converse All Star basketball boots. Even Spalding basketballs – the official ball of the NBA – are not truly “American”, since they are stitched offshore.


Unsurprisingly, this makes many Americans very nervous. President Barack Obama likens the rise of China and other emerging markets to the Soviet Union’s launch of the Sputnik missile – an event so shocking that it should galvanise the nation. And when the IHS data emerged last week, Deborah Wince-Smith, president and CEO of the Council on Competitiveness, told my colleague Peter Marsh that the US “should be worried” by China taking the top slot from the US. “This shows the need for the US to compete,” she declared.


On one level, such anxiety is understandable. But if you peer into the trade statistics, there is another, more subtle, shift under way: the real story behind these “made in” labels is not just that some items are no longer entirely “American”; instead, the bigger issue is that they are now produced in so many places, with such convoluted supply chains, that it is hard to tell where they are “made in” at all.


Take a look, for example, at a fascinating paper recently produced by the Asian Development Bank, which looks at where an iPhone is made. In this case, the company – Apple – is American; however, components for the iPhone are variously assembled in China, Korea, Taipei, Germany and the US, involving almost a dozen companies which are hard to pigeonhole with any ethnic label.


And it is not just in the world of electronics that these labels blur. Two decades ago, Sylvia Yanagisako, a Stanford University anthropology professor, went out to Italy to study the Italian textile and fashion trade – only to realise that so many of the key processes had moved to China that she shifted her research to Shanghai. She also found that Italian fashion designers are now tying themselves up in knots about what being an “Italian” designer really means. After all, the “Made in Italy” label carries cachet among consumers (including, ironically, wealthy Chinese shoppers). Many Italian designers insist that the concept of italianità (Italian-ness) is almost sacred. What, in other words, does italianità really mean if a product is partly made in China? The cultural contradictions on this new “21st-century Silk Road” – as Yanagisako dubs it – are intense.


The challenge for economists is even more profound. In the old days, they typically measured the output of an economy by watching where goods were “made”; but which country should claim the “value” for an iPhone (or an Italian suit or an American Girl doll)? Where does the real “output” come, in a world where companies can shift profits around?


Indeed, such is the complexity that Pascal Lamy, the head of the World Trade Organisation, recently voiced the seemingly heretical idea that economists should stop paying so much attention to “import” and “export” statistics. Thus, instead of trying to measure what is now “made in America” – or “China” – what economists should do is focus on the global economy as a whole, he insists. “It no longer makes sense to think of trade in terms of ‘them’ and ‘us’,” he argues; 20th-century-style trade statistics can be too arbitrary in the 21st-century world.


In rational terms, Lamy is absolutely right. But it is unlikely to cut much ice in political terms – or in a world where American unemployment is rising and politicians are muttering about currency wars. So the next time I pop into the American Girl store, I will look for the “Made in China” labels – and both chuckle and fret. This new, 21st-century Silk and Plastic Road is full of artifice on all sides; but, sadly, that does not prevent it from being a potential future flashpoint.

Copyright The Financial Times Limited 2011.