Clean Them Up, Clean You Out

McClatchy reports that China's massive effort to clean up Beijing's pollution by closing factories and blocking truck traffic is going to have a heavy cost...to America.

With China dominating global production of many goods, U.S. consumers will likely see higher prices if not outright shortages for products such as mobile telephones manufactured in the affected areas. The Olympics restrictions will also affect world supplies of auto parts, semiconductors, Vitamin C, steel and domestic Chinese supplies of cement and aluminum.

"We have a pretty good idea that the restrictions will slow things down, but we won't know the true impact until September," said Richard Brubaker, managing director of the Shanghai-based consulting firm China Strategic Development Partners. "Because of the Olympics and other factors, there'll no doubt be higher prices."

For foreign investors, the Olympic restrictions, coupled with rising energy and labor costs in China, have shaken confidence in the country's reliability as a world supplier, sparking searches for other sources of cheap labor, said Steve Keifer, vice president of product and industry marketing for GXS, which is a Maryland-based firm that helps companies streamline their supply chain.

Keifer said U.S. companies could move production lines to Mexico, Costa Rica and even Argentina to replace China, and European companies could go to Eastern Europe. Soaring fuel costs have also thrown into question the wisdom of producing goods so far from their markets.

"(The Olympics' impact) is one of a number of things happening associated with China to make companies rethink their sourcing strategies," Keifer said. "It's adding to the larger psychological effects of risk associated with working in China."

You'd think China would have come up with a more cost-effective, long-term solution considering they have 1.3 billion people. China's out, Mexico's in, and a lot closer. One would have to think providing additional jobs in Mexico would be a good thing.

Until those production lines get moved to whatever country's cheapest this year. But that's the global economy.