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ASIA’S cheap labor advantage is now a liability.
The United States is going to retrieve
the businesses it outsourced because it is more
cost-effective that way with the high cost of
transporting goods, journalist-turned-research fellow
Tion Kwa said.
Kwa, a 2008 Bernard Schwartz Fellow,
said the ramifications to Asia of a “technical”
recession in the US are severe because the dollar
remains weak despite actions by American monetary
authorities.
Kwa, a former editor of Singapore’s
Straits Times newspaper, added that the weakening dollar
has pushed up oil prices.
“Asia has so little in place in
conserving oil because it’s a basic ingredient in its
economy while the US still has reserves and has been
moving for conservation; something that the European
countries have already done. The EU has reached its
level of efficiently conserving oil.”
Hence, Kwa said, Asians will continue to
depend on oil despite its price “probably not declining
to the level we’re comfortable with.”
This, however, has made transporting
goods cheaper intra-US states and even from Mexico.
“Thus, even if Asia trades on low labor
cost, it wouldn’t matter as goods moved on transoceanic
level would remain expensive.”
To illustrate, he noted that a decade
ago a 40-foot container shipped to the US cost a shipper
$600, against $8,000 today.
The charges to tariff, though constant,
were superseded by a 9-percent increase in the cost of
shipping. “Effectively, that erases all gains of tariff
reductions enjoyed by the US.”
Kwa added that steel, for example, cost
$90 a ton to ship to the US for 1.5 hours of labor
required to produce that commodity.
“The high costs erode whatever gains
[there are] from cheap labor. In the long run, it would
be cheaper to produce steel in Pittsburgh for use in New
York,” Kwa said.
Because most Asian countries have relied
heavily on cheap labor as a trade advantage, Kwa said
the adjustments would take long.
He proposes two long-term remedies. One
is to build stronger domestic consumption; another is to
produce higher-value goods.
The Philippines, he said, should focus,
for example, on its rice production and not replicate
the panic-buying and panic-hoarding that Kwa said the
country started.
He added the Philippines should look
closer into the business-process outsourcing industry as
he predicts the continuing weakening of the dollar may
force US companies to ensure some processes remain
within American territories. |
