From David Welch at Businessweek:

It seems like Chinese workers want a bigger piece of the economic pie. The recent strike at a Honda transmission factory ended with workers getting 24 percent wage hikes. But don’t expect U.S. auto workers to start winning back work from China. The more likely beneficiaries are in Mexico. The rising wages in Chinese auto plants just about match the $7 an hour all-in cost, including benefits, in Mexican plants, says Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich. If you add in the $1,200 to $2,000 per-car cost to ship vehicles across the Pacific, ‘Ole Mexico looks better all the time. Shipping auto parts is cheaper than sending a whole cars across the ocean, but you get the idea.

Same goes for auto parts factories. Mexico has tariff-free trade deals with 25 countries, McAlinden says. That makes it an ideal place to bring in raw materials and then ship cars or parts. In fact, if Chinese carmakers want to invade the North America market, building in Mexico might be there best bet. McAlinden says that 16% of North American vehicle production is in Mexico and he expects it to grow to 20% in the next few years. Japanese automakers have even asked suppliers to set up shop in Mexico—not Asia—to supply parts to their U.S. plants, McAlinden said. The U.S. will still go begging for those jobs.

Two issues here. First, I completely agree that there will be no giant sucking sound in the near future from manufacturing jobs returning to the U.S. Not going to happen even if wages over here spike dramatically.

U.S. politicians from places like Ohio, Pennsylvania, and North Carolina (you know who you are) that routinely rail against China in order to get tight with their out-of-work rust belt constituents are engaging in outdated and sad populist rhetoric. Unfortunately, it still works in a lot of places.

Second, I remain skeptical of any mass movement to Mexico. Sure, there will be some sectors that will start sourcing parts from there, perhaps the auto sector is one of those. But there remains a lot of light manufacturing and textile work which has already moved out of China (or is in the process of doing so). Those jobs are going to Bangladesh, Vietnam, Indonesia, etc. and definitely not returning to Mexico anytime soon.

As to the general idea that wage increases will automatically mean a flight from China, think again. Sure, costs were a huge draw for many foreign investors in the early years, but things are much more complicated these days. Unless a company is doing nothing but exports, the lure of the China market will keep many manufacturers over here long past the time wages have ceased to be an advantage.