A recent analysis by the Boston Consulting Group (BCG) suggests that the U.S. will enjoy a manufacturing renaissance within the next five years as the wage gap closes between the U.S. and China. Wages in China are rising between 15-20% a year, and coupled with stagnant U.S. wages, BCG expects net labor costs for manufacturing to converge around 2015.
This would accelerate a trend already underway as more and more manufacturers
come to realize that the economics of offshoring depend on a lot of other
factors besides wage rates, including shipping costs, quality issues and lead
times. Skyrocketing gas prices in particular are driving up transportation
Despite the outsourcing craze of recent times, the U.S. still manufactures more goods
than any other nation on earth, and by a wide margin. A United Nations’ report
put America’s manufacturing
output at $2.15 trillion in 2009, far surpassing second-place China’s $1.48
trillion. China’s output has
been rising at a far faster pace than ours and this has led conventional wisdom
to assume that it would overtake the U.S. in manufacturing output before
the present decade is over. Now it looks as much in question as Tiger Woods’
pursuit of Jack Nicklaus’ tournament win records.
Of course, other nations with cheaper labor rates than China will no
doubt become more attractive to outsourcing manufacturers. But many of those
countries lack the labor skills and infrastructure to fully pick up the
slack. Plus, how long will it be before
those Third World workers start demanding higher wages and a better
Another factor likely to benefit U.S. manufacturers, at least in the short
term, is Japan’s supply chain disruptions due to its massive earthquake and
nuclear power plant woes. Brush off those “Made in the U.S.A.” signs.
Welcome Back, Manufacturers!
June 17, 2011