And the key plank of ensuring the future will be made in America.
Megan India, for India, n for the world.
Hello' Stephonomics here the podcast that brings you the global economy. Joe Biden has put made in America and the revival of American industry right at the center of his economic policies. He wants to bring more jobs home as a good in itself foreign policy for the middle class, they call it, but also to reduce what he sees as a dangerous reliance on China. But it is hard to do, especially when it comes to core consumer goods like clothes and toys,
where China has built itself a completely dominant position. Have I mentioned recently that China makes nearly all of the world's socks, while India's Prime Minister Narindra Modi thinks India can give the world a Plan B, probably more easily than the US. Well, hear how that's going in a minute. We'll also hear an economists perspective on all this from the Milk Institute's William Lee. But first, our luxury retail reporter Jeannette Newman went to la in search of a shirt.
I'm walking through the Fashion district in downtown LA It's one hundred block area that's at the heart of apparel production in the US, but I can't really tell that from walking around.
Right now.
I'm on Santi Alle, an outdoor shopping market that's packed with stalls and people seeking bargains. To my right, I see some knockoff Adidas sweatshirts and joggers, And to my left, I see some T shirts that are selling for three ninety nine. I've been looking at the tags, and most of the clothes are made in China or elsewhere in Asia. But down at the end of this alleyway, I see one sign, one single sign that says made in the USA. I'm going to go talk to the owner to find
out a little bit more. Hello, Hi, can I speak with you, ah claro in Espanol. No, But effect Maria tells me. The leather belt she's selling our USA made.
La Maria Pa Saina.
But most stuff at the market is from China. She says that's because labor costs are lower there. I'm not surprised that a lot of these cheaper goods are made in China and Asia, as Maria told us, But I would have expected to see just a few more products around here that are made in LA. After all, we're just a few blocks from ten story brick buildings that are full of floor after floor of people cutting and
sewing apparel. And right around the corner from where I am is a street where you can find roll after roll of fabrics and also buttons and zippers, anything you could possibly need to make clothing. And the county where I am, LA County, is home to more than a quarter of all apparel manufacturing.
In the US.
That's the largest ship in the country. To learn more about why it's so hard to find made in America products at the epicenter of American apparel production, I set off to talk to some designers and factory owners in the area.
LA is all about image and being able to create, you know, the style and the looks that influenced the world. That all happens right here in downtown.
That's Courtney Campbell. He's thirty six years old and runs a small clothing brand called Almighty Los Angeles. It's one of the few boutiques I've come across in the fashion district, which surprised me. Feels like going to Little Italy in New York and struggling to find a slice of pizza. A lot of retail stores in LA closed during the pandemic. The bounce back has been slow, like in other city center's, but the decline in LA was underway before COVID nineteen.
The number of apparel factories and shops in the city has been falling for years, succumbing to rising labor costs at home and increase competition abroad. When Courtney started designing clothes in twenty seventeen, he was able to source most of what he needed in downtown LA.
When I started, I would just walk blocks and go into a building and hit each floor and just knock on doors and say, you know, what do you guys do here? Or can you do this for me?
But it's become harder for Courtney to find everything he needs here. He recently bought some checkered fabric from a nearby store and then hired a small factory to cut and sew some shirts, but he couldn't find anyone to make matching baseball caps.
It's very hard to find manufacturing in America for your hats, and if you do find it here, most of the times they're going to send it over to China, get it made, and then and then just sell you the product.
So he cut out the middleman and source the hats directly from China.
China gives you that opportunity to still be able to maintain what your consumers are used to at the cost that they can afford.
As Courtney expands his business, he keeps encountering hurdles to manufacture apparel in la.
If you're going to do one hundred pieces and America, it's fine. If you're gonna do a thousand, then it doesn't make any sense.
I've spoken to a lot of apparel executives and entrepreneurs who would like to rely less on Chinese suppliers. In the past several years, the list of reasons to exit China has only gotten longer. First there were the tariffs. Then COVID nineteen snarled supply chains and shut down factories. More recently, pandemic restrictions were abruptly lifted, and US authorities have restricted the use of cotton from a Chinese region
because of human rights abuse is there. Meanwhile, geopolitical tensions have forced many to contemplate what would happen if China were to invade Taiwan. Despite the laundry list of hurdles, many clothing companies say they're sticking with China. It's unrealistic, they say, to think they can quickly extricate China from their supply chains. Why. For one, Chinese companies dominate the global production of yarn, cotton, polyester fabrics, and the cotton
spandex used to make your work from Home loungewaar. Some executives told me that even if they've managed to stop producing in China, they remain reliant on the country for raw materials. Also, Chinese factories have machinery that's top notch and a workforce that's highly skilled. That means they're unbeatable at making hats, for example, or sowing a certain type of stitch that doesn't chafe. And even if factories elsewhere can do those things, they often can't produce them at
the same volume, price, or quality. Some firms have been moving out of China, of course, to countries such as Vietnam or Cambodia, but sometimes those factories are owned by Chinese companies that are also trying to diversify outside the country. All of this is possible because China has been investing billions of dollars for decades to become the world's manufacturing powerhouse.
That's turned cities like Guangzhou into supply chain marbles. Here's Linfeng, who owns clothing factories in and around guangzhout.
Great reach.
If we need materials for production, will immediately contact our suppliers, send photos to them, and they'll deliver to us within just a few hours. Or sometimes we'll go to the wholesale markets to purchase. That's also less than a forty minute drive away, so it'll just take up to half a day to finish the purchase. I don't think anywhere else can be that efficient in sourcing.
Lynn says. Many employees live nearby in areas populated mainly by migrant workers. Their salaries are low, which keeps the lid on costs. In this dense network of workers, suppliers, and infrastructure, orders are turned around quickly and at a competitive price. It's taken decades to build this ecosystem. US apparel executives say it will be hard for any country to compete effectively at scale against China and its factories anytime soon, but that doesn't mean US factories have given up.
They're pulling out all the stops to convince American brands to produce here. That's the sound of what it takes to compete against China. It's an automated knitting machine that looks like it's printing out a sweater. I met on Dari Fashion, a knitwar factory about twenty minutes from downtown la.
It's being tough the past five years.
That's way Wang, the CEO.
We have to find efficiency winning the factory to continue. I mean to basically to be profitable.
His parents moved here from Taiwan in nineteen ninety one to start the factory. After the two thousand and eight crisis, Wade left his tech job to help his parents run on Darry. He started producing for Ralph Lauren and other high end clients that can afford a manufacture in the US, and he put his tech background to work by automating the factory as much as possible. Oh, it's right, it's writing the RL right, Ralph Lauren.
Yeah, Okay.
We watch one machine embroider Ralph Lauren's initials on a polo. In another room, the automatic knitting machine spits out three separate pieces of a sweater that an employee will then sew together. The machines cost between eighty to one hundred and fifty thousand dollars each, so.
Each machine is like a Mercedes. That's why we detail people like there's like ninety Mercedes in a park here in the in this factory.
But not every brand can afford to produce nitwear on these machines, so even Wi has to outsource the production of some apparel to China. Listening to the sounds of his factory, Way says he can tell the apparel industry has a tough year ahead.
So usually we should be picking up for the fall and holiday a sweater season production, but this year has been slow, so we're not. I mean it's not as loud here in the in the lining.
Room, production is down by about one third at Andari and Way here's the same thing from factories in China and Sri Lanka. Despite all the hurdles, Way thinks he's discovered away to keep more brands producing at home.
This is what waff Lauren calls a cree your own poil shirt. Basically, consumer can't go to the website and pick a base style and customize it who they like you way things.
Clothing made on demand for a single shopper is the future of US apparel production. This version of that future, though, does look a little hodgepodge.
The sleeves are different color, the rice lead or left sleeve is different.
Right has the left sleeve is black and the right sleeve is white. And then the cuff is green and the body of the polo is blue with a red a red collar. So this person had very particular taste right about what they about what they wanted.
And then you can also put the leather on the sleeve.
I can't imagine anyone I know wearing the shirt, but that's kind of the point. It's one of a kind, and that allows way to charge clients more for brands. It reduces the amount of extra merchandise they have on hand. Also, the likelihood of returns is lower. Los Angeles factories haven't been able to go head to head against China on price or volume, but perhaps if they go customized cuff by customized collar, they'll have a shot at survival. That
future looks a lot more colorful. From Bloomberg News, I'm Jeanette Newman.
Well, we're going to hear the Indian side of that story in just a minute. But first you might remember my conversation on the sidelines of that big Milken investment conference in la with their chief economist William Lee. Well, as it happens, we also spoke about whether not making in China was a viable strategy for global business or a wise investment decision for all those big money investors
gathered there in La. Okay, I want to talk to you about decoupling US China because it's an an endless source of conversation on this podcast, but it's also you know, it comes up again and again, and we have had you know, reporters coming at this story in different ways. And one thing they've noticed in the US is really hard for people to source outside China. That China plus strategy is proving much easier said than done. Yes, and yet it does seem like the US is wanting us
to reduce our vulnerability or a dependence on China. So what are you seeing? I mean, how realistic is it to think that one can have this diversification of supply chain.
I think that every investor in the West looked at China at least at some point they say my god, look at that population, Look at that size of the market. If I just sell one of my stuff right, one bottle of coke, right, just one to everyone there, I'll make a fortune. And so that huge size of the market was what attracted a lot of investors there. And then they discovered, my god, if I produce stuff in China, it's going to be really low cost. Can export it to the rest of the world.
Vultus just like that. They worked out much better than the first. The first one is hard to sell to Chinese consumers.
Because there's a high savings rate because when people earn money in China to save it rather than spending it. But also official policy is one where they really want domestic consumers to buy from domestic companies. Now, as an export engine, China has been very successful, but with COVID and the shutdowns, people recognize that it's very dangerous to
have your supply chain concentrated in China. So the China plus model, let's see, the companies are moving out of China to Vietnam and other areas where they could take advantage of a lot of cheap labor, but also you know, avoid a lot of the political flag of having imported
from China, so that model is there. But as you said, it's very hard for semiconductor company to or Apple to say, Gee, I want to take some of my stuff and make it over in India, because China really has a huge ecosystem set up to service all the facet of manufacturing, and when you try to take one or two elements out, you really can't succeed by just manufacturing someplace else. You really need the entire to replicate the entire ecosystem. So for China, a lot of the industries have proven to
be a lot stickier. The question I think most of my colleagues here at Milkin are asking, which is should I allocate an extra dollar to China now or should I be going to Vietnam and other places. Well, China's gone on a charm offensive to say to everyone we're open for business, be welcomed foreign capital. But if you look back at the speeches of Hijin Pin, his warning was we want to have domestic champions. You're welcome to come here and produce, but you have to help us
build up our national champions. And unless you do that, you're really not welcome. And I think that's the message that most investors are starting to get now, and that's the hesitancy even without the US China conflicts, the fact that China's owned domestic policies are ones where you come to China to help us become better manufacturers, period.
But that's what I was amazed. So that one of the one of the panels I did, as you know, at the at the Milk And conference, was with Asset Allocate. You know, these big investors, people from big asset management companies, and of course we had James Fraser, the head of City Bank, and it didn't really sense any lack of
enthusiasm for China. It was extraordinary. I mean, people under people recognized the geopolitical headwinds quote unquote and everything that's happened in the last few years, but they were still I would say, pretty gung ho for China.
Stephanie and Stephanie stuff. If you were in doing business in China to the extent that our audio are the people on stage were doing, and you actually said, gee, you know that domestic policies are getting less friendly toward me, you really think, and you're.
Going to be welcome. That's interesting. So you think they weren't being because they also were talking about it. I was struck by one of the claims was from one of the big hedge fund managers was, you know, the more China gets separated from the rest of the world, but more it did couples, the more attractive it is to me because it's going to move in different directions from the rest of the world. And when the world's going down, maybe China's going up. It's that diversification benefit.
You know. Again, that struck me as quite a little bit complacent. I mean, you know what happens if the US government just says no, sorry, you can't have any of those assets.
And then they'll use their subsidiar of Luxemburg to do the investment. Right, so I think that they can avoid the US sanctions. And I think that that answer is actually very practical because they're thinking, if China really indeed the couples, that huge China market is still there and they want to chuck of it. So it means that I have to invest in the Chinese domestic champion to
service that market. I'll at least get a share of that huge domestic market, and the Chinese domestic champion might start exporting to the rest of Asia other emergent markets Africa and Middle East. China is making inroads into places
where a lot of these investors want to be. So just as investing in US multinationals used to be one way to get international exposure, if the world becomes a bifurcated bipolar world where China dominates and the US dominates other parts, it's pretty smart to invest in Chinese multinationals.
It's fascinating though, because previously we would have had this model of globalization, a global capital market, and then the money is flowing to the most efficient place or the highest return place. You know, we have a segmented world that regionalized. There's more tensions, but somehow that makes us we're still making the argument that that means you should be investing in India or in China around than in the US.
When I use to teach trade at Columbia and we talk about comparative vantage, we say, oh, gee, you know, this country should make wine, if this country should make machines, and they should trade with one another and just gains from trade. Comparative advantage is not static. It changes over time.
And so one of the things that I think we have to recognize is that globalization, where China produces all manufacturing goods and it's the huge supply source to the rest of the world, may not be the most efficient model. You invested in China because there's low cost of labor input.
But technology makes expensive labor actually more productive. So if you have the right technology in other places where labor is more expensive, call it the United States, the more productive worker could actually be more worthwhile to invest in.
We have tended to say, and actually Bloomberg economics, we've made lots of you know, we make some assumptions in order to have estimates of what the cost of decoupling might be, and we have tended to think it will mean higher prices at the margin and lower productivity at the margin, even if you're using more productive workers. But you think that's going to potentially be turned on its head.
The gap may not be as big as you think. When you have ESG you're missing a couple of essays there safety, souldness, security, and so when you tag take the aweing costs of manufacturing in certain parts of the world and concentrate a certain part of the world, those costs don't the economic costs don't incorporate all of the costs that you really have to worry about.
Fascinating, Well, William Lee, thank you very much.
Well, it's been a pleasure to talk to you, and I really feel privileged to be in your presence.
Now, If made in America isn't practical for everything or everybody, could making in India be an alternative? A Prime minister there, Narindra Modi, certainly hope. So he's been pushing He's made in India strategy for nearly a decade. It's fair to say the world's now paying a lot more attention. Even the multinationals that Bill Lee was mentioning there who are sticking it out in China now do feel the need for a Plan B supplier. They call it China plus one.
And with China's population now poised to shrink, India also stands out as the only country around with a population big enough and young enough to make up for all those workers about to retire in China and around the world. So it all looks very promising on paper, but in practice, Indian producers are struggling to supplant Chinese imports. Even in the domestic Indian market let alone to compete internationally. Bloomberg's Rushi Battia and Rishti Beneval in New Delhi have been
digging deeper. Here's their report and it's Rushi's voice you'll hear doing the narration.
We're in a Hamley store on the outskirts of New Delhi. It's a multinational toy retailer and this is one of the biggest toy stores in the country. And yet Olo Swen is finally given difficult to pick up something for his children. What's the five year old's name?
Amen?
And the one year old adi Adi. Swain used to come here a lot to shop for Hot Wheels, a brand of toy cars that's loved by his boys. It's a bit expensive, but of good quality. Most importantly, it can survive the endless energy of his kits. Now he says, the store doesn't offer many choices anymore. The lack of choice in toy cars might have revealed a bigger problem that Prime ministerndery in Remove faces.
Making India, for Inja and for the world.
He has been pushing to reduce India's reliance on Chinese imports for years. With the world's biggest youth population. India is naturally a key market for Chinese toy makers, so when Mody decided to crack a whip on trade with China, toys came on top of the list. Every metaboli cities there are shortage of toys. What I feel like, Swain. Many other customers are leaving the toy stores a bit disappointed.
After Hamley's we went to a more than a century old toy shop in Delhi called Rum Tunder and Sons. There were just a couple of customers in the store when we visited. While it had a few toys imported from China, Vietnam and other Asian countries, most of the products had it made in India. Attack and World Gathering dust Sunjay came here looking for fine quality metallic helicopters. Any particular reason why you want to buy the toys which were manufactured in China.
It's a good quality, good cost, good quality.
Do you think the Indian manufacturers are not able to provide that or a scalability and the shoe licensing.
No, India.
Cannot make that quality. If India goes for the manufixing, it will be costly for them.
The quality of the China product is far better than Indian products. It's the same tale from the US and Mexico to India and Vietnam. Most local producers will tell us no, we really can't do what China is doing, and even if we can, it won't be at the same scale or price. But the government tried to push the envelope to curb imports from China. Prime Minister Moi first tried to use the nationalist rhetoric calling for boycott's.
Meridie call to localize industries.
India's Apex Traders Association has also announced to launch our massive campaign to boycott Chinese products China. Next came the trade barriers. Duties on Chinese toys have been raised from twenty percent to a whopping seventy percent in the last three years, and India even offered fiscal incentives on local production in certain sectors, But all that effort didn't move
the needle much further. China's imports to India stood at over one hundred billion dollars in twenty twenty two, nearly double of what it gets from UAE and the US combined. China was the biggest exporter for India in twenty fourteen when Mody came to power and it remains its biggest suppliers nine years later. That said, for some local producers, it certainly feels like a beginning of a boon after Corona Prime. Mister mister Modi has a great focus on toys.
That's N. K. Gupta, the founder and owner of a local soft toy factory called Funzu. Since the policy change, sales at Funzu have more than doubled. But the rapid growth wouldn't have been possible with other raw materials like metallic pins, integrated circuits and LEDs, which Gupta gets from China. We have just introduced electronic choice. What I said now, Challenger, Look, that tells me that he needs to import more components from China now than before as he rams up assembly
in the country. The conund room seems to be unsolvable, at least for the moment. What choice we have?
We have the choice either to cut down my finished goods imports are cut down by ramty or immediate imports.
Ajasa Hai is a director general of the Exporters Lobby Group in India. He believes India needs to pickets battles.
We have taken a choice that initially we will focus in more on the finished goods. So as of now we are providing PLI support to those segments where finished goods are being imported, but over a period of time, once we are able to achieve that with the condition of the local content and with more competitiveness happening, I'm pretty sure the large companies will look into producing the part.
India's plans to focus on some sectors has read benefits with companies like Apple moving to the country, but the jury is still out if India can break China's dominance and become the factory to the world, which means for Swain the search for his kid's favorite toy car could be a tad bit longer. From New Delhi, Ruchi Patia and Rishti Beniwal for Bloomberg News.
That's it from this not Made in China episode of Stephanomics. Next week we'll be hearing from Morocco. We'll also be hearing what the man who led President Obama's trade policies thinks about the very different approach that President Biden is taking, So don't miss any of that. In the meantime, you can get a lot more economic insight news from the Bloomberg Terminal website or app. This episode was produced by mangnus Henrickson, Yangyang and Sammasadi, with special thanks to Aette Newman,
Danielle Way, Bill Lee, Rishti Beneval and Rushi Batya. The executive producer of Stephanomics is Molly Smith and the head of Bloomberg Podcast is Sage Bowman.