Much focus has been paid in recent years — and in particular since the re-opening of the economy — to the challenges of U.S. employers finding enough domestic labor to re-open, maintain and grow operations. Recent U.S. data on job openings and unemployed people have made America’s labor shortage painfully obvious.

The widening gap in recent months between the number of job openings and the number of unemployed is pressuring employers to raise wages at a time when rising material costs are already eroding operating margins. In the long-run, these conditions will force firms to raise prices.  

However, this issue is not limited to U.S. employers alone. Recent years of data on Chinese labor availability indicate a similar problem. According to Statistia, the number of people in the Chinese workforce peaked at 776.4 million in 2017 and has fallen every year since then. Furthermore, data published by Wind and reported in the Wall Street Journal in an August 2021 report suggest that the problem in China is being compounded by the COVID- induced decline in the number of migrant workers moving to major population centers where production and manufacturing jobs are primarily located.

Similar to the U.S., the shortfall in available labor is forcing companies to offer higher wages or face the consequences of reduced output. The consequence of this is apparent in Chinese price inflation, but in particular in the price of exported goods. In the U.S., import prices starting in April 2021 and lasting through the latest available data ending with July are up in excess of 10%. This marks the fastest increase in import prices since the end of the Great Recession.

As a significant provider of imported products, changes in China’s manufacturing costs have direct and consequential affects on the prices U.S. consumers pay.

The structural and cultural challenges affecting the availability of China’s manufacturing labor pool will not be easily solved and certainly not quickly. This enduring problem to China’s cost competitiveness will likely result in a combination of increased U.S. on-shoring and the relocation of production to lower-cost nations.  In the near and medium term, U.S. consumers and manufacturers should brace for the real possibility that inflation will be more than transitory as advocated by some government bodies.