Thu, Aug 22, 2013 - Page 15 News List

US manufacturing gaining ground

LOW-COST MANUFACTURING:The US could gain up to US$115bn of annual exports usually coming from Europe, Japan and China within six years, creating 5 million jobs


After decades of hollowing out, US manufacturing is overtaking competitors and stands to grab up to US$115 billion more in export business from rivals by 2020, a new report said on Tuesday.

The Boston Consulting Group (BCG) study said a more productive US factory sector, enjoying cheaper energy and relatively lower wages, will pull production from leading European countries, Japan and China.

Within six years that production will capture US$70 billion to US$115 billion in annual exports that would have come from the countries.

And together with “reshored” manufacturing from China, where rising wages are undermining its competitiveness, the shift could add from 2.5 million to 5 million jobs in the country, the study said.

“The US is steadily becoming one of the lowest-cost countries for manufacturing in the developed world,” BCG said.

It said that by 2015, average manufacturing costs in the five major advanced export economies — Germany, Japan, France, Italy and Britain — will be 8 to 18 percent higher than those in the US.

By that time, US labor costs will be 16 percent lower than in Britain, 18 percent below Japan’s, 34 percent below Germany’s and 35 percent below labor costs in France and Italy.

Moreover, the report underlined, the US workforce has much greater flexibility than its industrial rivals.

The second key advantage in the US is the sharp fall in energy prices due to the boom in shale gas production.

“Cheap domestic sources of natural gas translate into a significant competitive advantage for a number of US-based industries,” BCG said.

That will especially help chemicals and plastics industries, but also producers of primary metals, paper and synthetic textiles.

BCG said a common assumption is that manufacturing leaving Europe and Japan would go to China.

However, it argued, Chinese wages have been rising so fast that its cost advantage on many goods it sells to the US will only be around 5 percent in 2015.

“When logistics, shipping costs, and the many risks of operating extended global supply chains are factored in, it will be more economical to make many goods that are now imported from China in the US instead, if they are consumed in the US,” the report said.

The study pointed to signs that the shift is already happening: Toyota exporting US-assembled cars to South Korea and Honda boosting its US export-directed production; Siemens building gas turbines in the US to sell to Saudi Arabia; and France’s Michelin making large earth mover tires for export in the US.

“While the impact of this trend on US jobs is currently modest, we expect a significant increase in such announcements starting around 2015, as the economic case for reshoring to the US grows stronger,” BCG said.

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