Should we pay companies to move manufacturing out of China?

I note that Japan is doing precisely that.

Japan has earmarked US$2.2 billion of its record economic stimulus package to help its manufacturers shift production out of China, as the coronavirus disrupts supply chains between the major trading partners.

The extra budget, compiled to try to offset the devastating effects of the pandemic, includes 220 billion yen (US$2 billion) for companies shifting production back to Japan and 23.5 billion yen for those seeking to move production to other countries, according to details of the plan posted online.

. . .

The government’s panel on future investment last month discussed the need for manufacturing of high-added value products to be shifted back to Japan, and for production of other goods to be diversified across Southeast Asia.

There’s more at the link.

I don’t know that it’s a good idea to specifically subsidize a negative – i.e. for companies to move their manufacturing out of China, or any other country, for that matter.  However, subsidizing a positive benefit might be worthwhile.  Aid can be given to help critical industries diversify production, so that it’s spread across several countries in more than one region (thereby preventing loss of production in one country from shutting down manufacture of that product altogether).  Additional subsidies to bring at least part of that manufacture back to the USA might also be feasible.  They might not involve payment up front, either:  if the US government guaranteed the purchase of a given amount, or a given proportion of domestic production, that might be sufficient incentive.

This might also be a useful lever to use against companies that put their profit ahead of all other considerations.  If they refuse to move their production, on the grounds that it’ll cost them too much money, then let the government offer subsidies to competitors to enter that market and make what we need.  If smaller, faster-on-their-feet rivals see that they can benefit, they’ll jump at the chance.  It might also be tied to President Trump’s proposed investment in our run-down national infrastructure.  If contracts to rebuild (say) bridges, or roads, or railways, are linked to moving production back to the USA, or those contracts specify that only US-produced goods and materials may be used in those projects, that’ll concentrate a lot of business minds.

Of course, this may lead to a whole new trade war.  China can be expected to cut its prices to the bone, if necessary with government subsidies to do that, in order to make it too expensive for companies to leave its shores.  Alternatively, it can try to buy up all the critical raw materials needed for production elsewhere, and insist that they’ll only be released to manufacturers using them inside China’s borders.  There are all sorts of countermeasures China can employ.  It might even start throwing its weight around in the military sphere (e.g. by threatening Taiwan, or stoking up the ongoing controversy over the South China Sea).  That would provoke crises that divert other countries’ attention from moving production to putting out geopolitical fires.

It’ll be interesting to see how this plays out.



  1. Investing in fixing our infrastructure is a good idea, be even a better idea if all the tools & materials used were required to be "Made in the USA".

  2. We could stop sending our "garbage" and recycling overseas for processing, and recover the good stuff for our own use; we've been building China's infrastructure one pop can at a time.

  3. In the beginning of Trump's administration, one of his stated goals was to rebuild infrastructure using American companies using American products and materials.

    Then all the kerfluffle over the impeachment that started the day after Hillary lost…

    One of the requirements for The Wall is to use as much American stuffs as possible.

    As to subsidizing companies to move out of Communist China, yes, that seems negative, but it is more positive to say one is subsidizing companies to move back home or to more favorable trading partners. Same thing but sounds more positive.

  4. A lot of this happened thanks to New World Order Marxist Bush the Elder and along with Bill I'm owned by the Chinese when not having sex with any women and both parties winked and nodded to go along with it.

    Meantime, the unions did not want to lose their imagined grip on power and the CEO's were going to make millions one way or the other.

    It's too bad no one wants to take a look at the US tax and regulatory structure to see what can be changed or removed. I'm all for worker safety and there a lot of things we use that you don't want dumped into your local river or lake 'because it's cheaper'. However, not every employee is providing $50/hour of value and not every CEO is worth tens of millions of dollars. There has to be some compromise in here somewhere.

  5. Until you remove the onerous regulations and idiotic limits on businesses imposed by agencies like OSHA and EPA and such, there won't be that many businesses coming back.

    Bet on it.

  6. B,

    Thus the reason the Trump Administration has the 'Get rid of 2 regs for every new reg' rule. It's up to about 12 regulations removed for every 1 regulation enacted, and many of the old regulations are being sanity checked.

  7. I don't think incentivizing it is a bad idea, if necessary. Esp. with items like drugs and drug precursors. I think the issue here is many companies only care about profit margin, and don't want to pay workers spit. So they place production in countries where the local govt. thinks the same way. Not to mention, it would be a big financial loss for the Chicoms.

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