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In a world with just two countries, that would work. In reality, they compete with every other country in the world for low end assembly work. Chinese real estate has always been expensive compared to its competitors. Recently, wage inflation has made Chinese labor expensive as well. They can't just raise prices. We open plants there and buy from them because they're cheap. When costs go up or they raise prices, we'll get our stuff elsewhere. You may or may not recall that we used to see a lot of stuff that said Made in Taiwan, Korea, et al during the 80's and the 90's. China is just the latest cheap labor destination. When oil prices are stable, its easy to move manufacturing from country A to country B. But oil prices are so high that it becomes difficult to justify building a new plant somewhere else. Then, there's the whole issue of supply chain. Right now, China has the ability to produce the steel, aluminum, copper, etc that manufacturer's need. I'm not sure that another country can build those industries from scratch.

When oil prices are stable, its easy to move manufacturing from country A to country B. But oil prices are so high that it becomes difficult to justify building a new plant somewhere else. Then, there's the whole issue of supply chain. Right now, China has the ability to produce the steel, aluminum, copper, etc that manufacturer's need. I'm not sure that another country can build those industries from scratch.

What we do in China - and in most low-labor cost countries - is mostly light manufacturing. As to fuel costs deterring plant construction, that's a head scratcher. How much of a factor do you think fuel costs are as a proportion of plant construction? Are they high enough to offset the difference between hiring 2000 workers at $30 a month (minimum wage in Vietnam) vs $100 a month (minimum wage in China)? Is putting up a new building going to cost an additional $140,000 a month in fuel costs? The deterioration in China's competitiveness is exactly why companies like Taiwan's Hon Hai - the largest outsourcing firm* in the world - are starting to train large numbers of Vietnamese and other nationals at their Chinese plants, in preparation for moves to locations outside of China.

* It assembles boxes for companies like Cisco, Dell, etc. It doesn't design the innards, but it does the packaging (box, materials, color, etc) according to customer specs.