A recent article over on bcg.perspectives on the U.S. Manufacturing Renaissance (registration required), summarized over on Supply Chain Brain (in an article that states Manufacturing “Renaissance” to Begin Returning to U.S. Around 2015), states that seven “tipping point” sectors are poised to return to the U.S. for manufacturing:
- transportation goods
- computers and electronics
- fabricated metal products
- plastics and rubber
- appliances and electrical equipment
The expectation of Boston Consulting Group (BCG) is that these industry groups could boost annual output in the U.S. economy by 100 Billion while creating 2 to 3 Million jobs and lowering the U.S. non-oil merchandise trade deficit by up to 35% when combined with increased U.S. exports, starting in the next five years.
Note that these industry groups account for about 2 Trillion in U.S. consumption each year, and roughly 70% of the 300 Billion in goods imported from China. If the BCG is right, China will not only lose a huge cost advantage of the US, but a huge manufacturing advantage as well.
Why would this happen?
- Labor costs in China are rising rapidly (at 15% to 20% a year) with required skill levels, quality and the rising yuan; the gap between US and China labor costs will be less than 40% by 2015
- U.S. productivity is increasing
- Factory automation is increasing, and a robot costs the same whether you operate it in China and the US
- shipping and import costs (due to all of the security and
paper trail requirements) are rising
- management costs are rising with travel costs, as on site visits are becoming more expensive
It’s pretty clear that China is on its way out as a manufacturing location of choice for many industries and American companies, with the exception of those that have invested in World Class Facilities (like Apple, etc.) that could not be cost-effectively replicated elsewhere. But will the Renaissance take place in the US, or will we see a return to Mexico? That is not quite as clear.