The idea that those lost jobs might someday be recovered often was dismissed as the musings of the daydream believers among us.
A newly released study by the Boston Consulting Group (BCG) reinforces the developing optimism.
BCG says that production of up to 30% of goods that the U.S. now imports from China in seven industry groups could shift back to the U.S. before the end of the decade. This would add $20 billion to $55 billion in output annually to the U.S. domestic economy. Machinery and fabricated metals are two of the groups. The other groups thought to be at or near the tipping point are furniture, plastics and rubber products, computers and electronics, appliances and electrical equipment, and transportation goods.
The shift, says BCG, combined with increased exports due to improved U.S. competitiveness, could create 2 million to 3 million jobs, reduce unemployment by 1.5–2 percentage points, and lower the non-oil-related merchandise deficit by 25–35%.
BCG notes that in 2000, factory wages in China averaged 52 cents/hr — only 3% of what average U.S. factory workers earned. "Since then, Chinese wages and benefits have been rising by double digits each year, averaging increases of 19% from 2005 to 2010. The fully loaded costs of U.S. production workers rose by less than 4% annually between 2005 and 2010, and labor unions have become more flexible in negotiating future pay and benefits."
By 2015, BCG estimates, the total labor-cost savings of many Chinese-manufactured goods will be about 10–15% when actual labor content is factored in. When shipping and the risks and hidden costs of extended global supply chains are considered, many companies will find that products destined for the U.S. will bring only marginal savings — and that manufacturing these products in the U.S. could be more economical.
"Factory automation in China is unlikely to significantly change the equation," BCG notes. "Installing state-of-the-art automated production lines would undercut the chief competitive advantage of export manufacturing in China — low factory wages — because it would reduce the labor content of products. Any labor-cost advantage would then apply to a much smaller portion of total costs."
The report contends that this business is unlikely to go elsewhere, since low-cost nations such as Vietnam and Indonesia don't have the infrastructure, skilled talent and supply networks to absorb all the displaced export manufacturing.
Mexico is in the same boat, says BCG, and also raises safety concerns related to drug trade. More importantly, Mexico's current production in some of the tipping-point industries is quite limited.