MLR

Will America bring jobs home soon?

Categories:

After decades of eroding manufacturing employment in the United States, signs of a possible reversal are beginning to be seen.

American corporations such as General Electric, NCR, Ford and Apple are moving jobs back home, a business strategy called onshoring.

hardhat on flag

Since 2010, more than 300,000 manufacturing jobs have been created, another positive indicator that the industry is growing. Long stagnant European exports are also increasing by about 7 percent per year.

Reasons for the trend include rising Chinese wages on one hand and American advantages on the other. These advantages include higher productivity, reduced lead time, quality, production closer to R&D, and shipping costs.

In its extensive study of the issue, Boston Consulting Group has determined that American industry is close to what it calls “the tipping point.”

One major factor is that China’s low-wage advantage is eroding. With wage increases that are close to 20 percent per year, the average manufacturing wage is estimated to reach $6.31 per hour in 2015.

When global supply chains, productivity and shipping are factored in, the Chinese advantage becomes marginal. Volatile oil prices and currency fluctuations are other factors affecting the bottom line.

Seven industries were identified by the consulting group that are expected to reach the tipping point within five years. This shift is expected to take place when it becomes more economical to produce U.S.-consumed goods on this continent.

In 2010, $200 billion in these goods were imported from China out of a total consumption of $2 trillion. These industries are:

  • Computers and electronics, $122 billion
  • Appliances and lighting, $25 billion
  • Farm, office and business equipment, $16 billion
  • Furniture, $13 billion
  • Fabricated metal products, $10 billion
  • Plastic and rubber goods, including tires, $9 billion
  • Transportation parts for autos, planes, bicycles, motorcycles and trucks, $6 billion

Within 10 years, 10 to 30 percent of Chinese production will shift, with the majority going to the United States and some to Mexico. This reversal could create 3 million direct and indirect jobs in the United States and decrease the unemployment rate by 1-2 percent.

Manufacturing jobs also have a multiplier effect on other industries such as construction, food services, retail and transportation.

Increased U.S. exports of products from the seven industries are also expected because of the American advantage over European production. Over the next five years, an anticipated $100 billion is expected to be added to the U.S. economy through this manufacturing resurgence.

Just as companies rushed into China because of the lure of low wages, the report urges them not to do the same in reverse. Worker productivity, hidden costs, risks of global supply chains and logistics should all be weighed to determine the optimal production plan.

Some companies will have an opportunity to supply the Asian market as growing incomes increase purchasing power there. Decisions made now could affect company performance for decades to come.