Relocating the manufacturing industry to Europe

The world is experiencing a deep transformation in the way how people work. People are forced to stay at home and to work from there whenever possible, and asked to limit their physical contacts to the minimum. All these circumstances lead to a significant decrease in economic activity and, accordingly, a decrease in the economic performance of the affected countries.

Japan has decided to allocate $2.2 billion to encourage its companies to return their production facilities to Japan. Before the crisis, China was Japan’s largest trading partner, but since mid-February the supplies of the necessary components have dropped dramatically, causing Japanese companies to significantly shrink their output. With the return of some of its companies, Japan’s dependence on China will diminish, and so, in future crises, the reduction in the economic indicators could be less outspoken. 

The step implemented by Japan to enable their companies to return to their country will allow them to create new work positions. For example, people who have lost their jobs in the third sector due to the pandemic from COVID-19, will be able to take advantage of the new positions in the second sector. If such a policy is put in place and a similar fund is created in the European Union, it could create many jobs once the crisis is over.

As several sources highlight, one of the most affected areas is Eastern Europe: “The slump in Eastern Europe is of particular importance for the German economy. This is because the Visegrad countries Poland, Czech Republic, Hungary and Slovakia alone had a greater importance for the German economy in 2019 with a trade volume with Germany of 303 billion euros than China with 205, 7 billion and the USA with 190.1 billion euros. Germany’s total trade with Eastern Europe was 453.7 billion euros, which made up a fifth of Germany’s total foreign trade. Some countries in Eastern Europe, especially Bulgaria, Romania, and Ukraine, are also suffering from the drastically declining remittances of compatriots actually working in western countries.”

According to a Eurostat survey, the European Union exported goods to China for EUR 198 billion and imported goods for EUR 362 billion. This results in a so-called trade deficit of EUR 164 billion. In addition, 54% of imported goods are machinery and vehicles, i.e. € 195 billion. If at least 10% of these last goods were made in Europe (estimated at over €19.5 billion), this could create more jobs for European citizens, more tax income for the European Union and an opportunity to those who have lost their job during the coronavirus pandemic.

According to a 2019 Eurostat survey, there are EU countries with an average labor costs below 10 euros. These are Latvia (9.9 euros per hour), Hungary (€ 9.9 per hour), Lithuania (€ 9.4 per hour), Romania (€ 7.7 per hour) and Bulgaria (€ 6.0 per hour). According to a survey made by statista.com, the average labor costs in China amount to $ 5.78, or € 5.32. Even though this cost is lower than the labor costs in Bulgaria, EU member states  can still be competitive if some form of financial compensation is provided as an incentive.

By implementing a fiscal policy that promotes the relocation of manufacturing plants to Europe, many of the negative effects of COVID-19 could be overcome. These policies should not only enable the relocation of the manufacturing sector to Europe, but also ensure that the differences between Chinese and European workers are taken into account. If these measures are adopted, they could be very helpful in rebuilding the European economy, with regard to the labor market.

We, the European Democrat Students, the official student organization of the European People’s Party (EPP), call upon European lawmakers to:

  • Establish a fiscal policy framework to enable the relocation of the second sector (manufacturing), especially those activities related to machinery and other products, which within the EU can provide added value to the economy.
  • Cooperate with Member States where labor costs are lower to implement the fiscal plans.
  • Prioritise the relocation of manufacturing to those Member States where labor costs make it possible to compete in the international markets.
  • Engage in dialogue with companies, think tanks and national industry associations to make sure that the specific measures taken in the context of relocation support the EU industry, EU employment and the global economy as a whole.
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