Machinery Could Make U.S. Comeback

Source: ControlDesign.com

Dec 05, 2011

Machinery is among seven "tipping point" sectors that are set to return to the U.S. for manufacturing, along with computers and electronics, fabricated metal products, plastics and rubber, appliances and electrical equipment, furniture, and transportation goods, according to the Boston Consulting Group (BCG, www.bcg.com).

Combined with increased U.S. exports, these industry groups could boost annual output in the economy by $100 billion, create 2 million to 3 million jobs, and lower the U.S. non-oil merchandise trade deficit by up to 35% beginning in the next five years.

Part of the reasoning behind the findings is that China is expected to lose most of the cost advantage over the U.S. that it has enjoyed since it joined the World Trade Organization (WTO) in 2001. "A surprising amount of work that rushed to China over the past decade could soon start to come back—and the economic impact could be significant," said Harold L. Sirkin, a BCG senior partner and lead author of the analysis. "We're on record predicting a U.S. manufacturing renaissance starting by around 2015. Now we can be more specific about which industries will return and why."

The tipping-point sectors account for about $2 trillion in U.S. consumption per year and about 70% of U.S. imports from China, valued at nearly $200 billion in 2009. The job gains would come directly through added factory work and indirectly through supporting services.

When higher U.S. productivity, the actual labor content of a product, shipping, and other factors are taken into account, the cost advantage of making many goods in China that are bound for sale in the U.S. will be marginal. The biggest impact will be felt in sectors in which wages account for a relatively small portion of total production costs and in which logistics costs and other factors such as shipping time and distance are critical.

The changing economics of manufacturing are already showing up in trade data. From 2001 through 2004, imports from China grew by about 20% per year. That growth rate has slowed significantly, to about 4% in the past few years. U.S. imports from other low-cost nations also have flattened—and actually declined in 2009. The trend is especially pronounced in the tipping-point sectors. "We are already starting to see some movement of production in these industries," said Douglas Hohner, a BCG partner and co-author of the analysis.

Show Comments
Hide Comments

Join the discussion

We welcome your thoughtful comments.
All comments will display your user name.

Want to participate in the discussion?

Register for free

Log in for complete access.

Comments

No one has commented on this page yet.

RSS feed for comments on this page | RSS feed for all comments