- Advanced Manufacturing
U.S. Manufacturing Comeback on HorizonAugust 22, 2013
The steady emergence of the U.S. as one of the lowest-cost countries for manufacturing in the developed world is a trend that is likely to have major implications for manufacturers around the world.
After decades of decline U.S. export manufacturing is poised for a comeback, making it the “unsung hero” of the economy and one of the lowest cost manufacturers in the developed world, a new report says.
“[A]s a result of its increasing competitiveness in manufacturing, [the U.S.] will capture $70 billion to $115 billion in annual exports from other nations by the end of the decade,” according to the Boston Consulting Group that authored the report.
Nearly two-thirds of those gains will come from production shifts from European nations and Japan to the U.S., according to the report. Those production gains, added to “reshored” manufacturing from China, where an increasing costly labor market is denting that country’s global competitiveness, will result in a jobs explosion of somewhere between 2.5 million and 5 million, the report says.
“Our analysis suggests that the U.S. is steadily becoming one of the lowest-cost countries for manufacturing in the developed world,” the report says.
Within two years average manufacturing costs in the U.S. will be between 8-to-18 percent lower than those of Germany, Japan, France, Italy and the U.K., the report says. Among the biggest contributing factors to the low-cost manufacturing environment in the U.S. are labor costs, and increasingly lower prices for natural gas and electricity.
The U.S. labor market is more flexible than that of its international rivals, the report notes. “A major reason for this… is that it is far easier and less costly in the U.S. than in most other advanced economies to adjust the size of the workforce in response to business conditions,” the report says.
By comparison, German businesses are heavily regulated when it comes to trimming a workforce. It can cost more than $40 million to close a 1,000-worker plant. Costs including complying with government mandates for severance pay and rules that laid off workers may be eligible for full pay for more than a year, depending on time on the job.
The “shale revolution” has produced a tenfold increase the production of natural gas since 2003, leading to a 51 percent drop in price since 2005. That cheap gas translates directly in cost savings for U.S. manufacturers; meanwhile, natural gas costs anywhere from 2.6 to 3.8 times as much in Europe and Japan, the report says.
Gas fired power plants are an important producer of electricity for America’s manufacturers; lower electric bills add a further advantage “of several percentage points to energy-intensive U.S.-based industries such as metals and paper,” the report says.
The report notes that “many may assume” that when developed economies are shedding jobs, those jobs end up flowing into China. However, because wages are rising at such a rapid clip in China, the report sees China’s cost advantage over the U.S. labor market narrowing to within five percent in the next two years.
“When logistics, shipping costs, and the many risks of operating extended global supply chains are factored in, it will be more economical to make many goods now imported from China in the U.S. if they are consumed in the U.S.,” the report says.
The cost advantages for U.S. manufacturing are likely to continue for the next five to ten years, the study says. “As a result, the steady emergence of the U.S. as one of the lowest-cost countries of the developed world is a trend that is likely to have major implications for manufacturers around the world in a wide range of product categories across a wide range of industries.”
“Improving U.S. cost-competitiveness compared with developed economies, combined with rising costs in such offshore-manufacturing havens as China, represent what we believe is a paradigm shift that could usher in an American manufacturing renaissance,” the study says.