Coronavirus isn’t bringing jobs back to America

U.S. Commerce Secretary Wilbur Ross had a spectacularly insensitive reaction to China’s coronavirus epidemic during a recent interview:

“I think it'll help to accelerate the return of jobs to North America. Some to U.S. Probably some to Mexico also ...the fact is, it does give businesses yet one more thing to think about once they undergo their review of their supply chain.”

This is a heartless thing to mention at a time when thousands of Chinese people are infected, and millions more are huddling indoors as disease spreads. But it’s also probably wrong on the merits. Coronavirus is unlikely to be a boon for U.S. employment.

It is true that the epidemic may cause multinational companies to rethink their reliance on China. The country is so huge that despite the necessity to diversify, companies can’t help but address it as a source for components and made goods. The U.S., Japan and South Korea are especially hooked in to China during this regard:

Diseases, although they will jump from country to country, tend to remain within a nation’s borders because the govt can close the borders to limit the spread. This highlights the danger of concentrating supply chains in one nation. Of course, that’s dangerous for other reasons, because the trade war and Chinese government policies designed to assist domestic champions against foreign rivals have recently made clear. But the knowledge that China can still be an incubator for fast-spreading epidemics will probably heighten the sense of risk. That won’t be enough to urge multinationals to abandon China, especially given the lure of its huge domestic market. But it could accelerate the trend of diversification to other locations.

But these alternatives are unlikely to be within the U.S. Now that U.S. companies have built up the management and technical infrastructure to manage global supply chains, there are many other low-cost countries available. And China’s spectacular success at providing jobs and rising living standards for its people by attracting multinational investment has inspired variety of other countries to undertake to be subsequent China.

Two such countries are Vietnam and Bangladesh. Both have stable governments and low labor costs and are natural alternatives for labor-intensive manufacturing of things like toys, clothing, furniture, electronics-assembly work then on. Bangladesh, for instance , may be a star within the garment industry . Meanwhile, the U.S. deficit with Vietnam, which had been growing for years, jumped in 2019.

The coronavirus outbreak may accelerate this shift and pull countries like Indonesia, Ethiopia and therefore the Philippines closer to global supply chains. Each country features a limited ability to soak up production from China due to institutional bottlenecks and a smaller population. But together they provide a modest amount of diversification for multinationals. A wholesale exit of worldwide companies out of China would be a special story, but this is often vanishingly unlikely.

Meanwhile, some production may return to the U.S. from China. But this is often likely to be capital-intensive stuff — heavy industry and sophisticated manufacturing. Those are things best done by machine tools and robots rather than by human hands. High U.S. wages mean that a wave of reshoring from China will do little to counteract the trend toward automation in manufacturing, meaning that any gain in U.S. jobs are going to be minuscule.

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