Analysis Finds That U.S. Could Gain 2 to 3 Million Jobs and an Estimated $100 Billion in Output as Seven Industry Clusters Approach a ‘Tipping Point’ over the Next Five Years
Tuesday, October 18, 2011
Seven “tipping point” sectors are poised to return to the U.S. for manufacturing: transportation goods, computers and electronics, fabricated metal products, machinery, plastics and rubber, appliances and electrical equipment, and furniture, according to new research by The Boston Consulting Group (BCG).
Combined with increased U.S. exports, these industry groups could boost annual output in the economy by $100 billion, create 2 to 3 million jobs, and lower the U.S. non-oil merchandise trade deficit by up to 35 percent beginning in the next five years.
BCG also projects that China will lose most of the huge cost advantage over the U.S. that it has enjoyed since it joined the World Trade Organization (WTO) in 2001. As a result, many companies will rethink where they produce certain goods meant for sale in North America.
“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 percent 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, such as construction, transportation, and retail.
“This does not mean that factories in China will close,” noted Michael Zinser, a BCG partner who leads the firm’s manufacturing work in the Americas. “Instead, more of their output will be consumed in the fast-growing domestic market and elsewhere in Asia.”
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. “That will make the U.S. a much more attractive investment location for new factory capacity,” said Sirkin.
The new analysis spells out what these cost swings will mean to specific industry clusters. Sectors like apparel, footwear, and textiles will remain largely offshore because China and other low-wage nations will still enjoy large cost advantages. 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.
Some production migrating from China will go to Mexico, where labor costs will remain cheaper than in either China or the U.S. But not as much as one might think. “America’s experience in these tipping-point sectors and its much larger pool of skilled workers, as well as logistical and security concerns, will make the U.S. a better option for many companies,” explained Justin Rose, a BCG principal and a coauthor of the analysis.
The changing economics of manufacturing are already showing up in trade data. From 2001 through 2004, imports from China grew by around 20 percent per year. That growth rate has slowed dramatically, to only around 4 percent 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 also a coauthor of the analysis.
Recent moves by companies underscore the new manufacturing math. Ford, NCR, Master Lock, high-end cookware maker All-Clad Metalcrafters, audiovisual equipment maker Peerless Industries, Chesapeake Bay Candle, and irrigation control maker ET Water Systems are among the companies that have recently shifted manufacturing of some items from China to the U.S. Escalating Chinese wages aren’t the only reason. Electronics manufacturing services company AmFor Electronics, for instance, cited delivery responsiveness and ease of design revisions as reasons for relocating wire-harness production and some final assembly from China and Mexico to Portland, Oregon.
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