In this post, we like to tout gains in the manufacturing sector whenever we can find them. Recently, another Wall Street Journal article (October 7, p. B1) sheds light on the recent trend bringing more jobs back from China to American shores, and what’s behind the trend.
The article points to increasing labor costs overseas, the high cost of shipping and more recently, the strengthening value of the yuan (Chinese currency) which makes Chinese exports to other countries more expensive (and correspondingly, U.S. exports less costly).
An example cites the opening of a North Carolina furniture factory, an industry previously trounced by offshore competition, where often as not, U.S. producers that had previously outsourced production found themselves bumped aside as their venture partners started selling directly to the U.S.market. The example also notes that what once was a 50% price advantage by the Chinese has now settled to only 10 to 15%, mostly due to soaring Chinese wages. As a result, Ford Motor recently announced that it will start building in the U.S. some auto parts previously outsourced.
The article quotes Hal Sirkin of Boston Consulting Group who has identified seven industries ripe for relocation to the U.S. These include furniture, transportation goods, computers and electronics, appliances, plastic and rubber products, machinery and fabricated metal products.
In other words, much of the core of middle-U.S. manufacturing.
Sirkin believes that rises in labor, materials and shipping costs – coupled with increasing just-in-time demand requirements from customers – will cause a tip in the scales to U.S. advantage in about four years. He calculates the addition of 800,000 jobs to the manufacturing sector. That figure nearly quadruples if you add the service sector jobs required to support those manufacturing jobs.
Add to these factors the much greater productivity of American workers, more flexibility by U.S. unions, and pressures to shorten turnaround times and you’ll likely see more manufacturers abandoning their long supply chains to China.
Meanwhile, the yuan has already risen some 30% against the dollar since 2005. Many manufacturers have already brought production back home. We’ve seen this among our own customers, who often cite “quality concerns” as their reason.
The factors noted above will only add to the trend. And that trend will have a ripple effect as those furniture manufacturers add new state-of-the-art saws, the metal fabricators add new tooling, and those rubber parts producers add more molding machines. Once again, the jobs pendulum swings – this time, the U.S.’s way.