China's Cheap Labor Era Is Ending -- And These Products Are About To Get More Expensive
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The end of the cheap, "Made-in China" era is near -- and it's going to affect your bottom line.
Soaring labor costs fueled by worker shortages and social unrest, an appreciating currency and rapid increases in the price of raw materials and energy are all making it more expensive for manufacturers to operate in China.
The Hong Kong Trade Development Council (HKTDC) estimates that production costs in China's factories will jump five to nine percent. As rising production costs ripple through the global economy, consumers should expect to pay higher prices for a broad array of goods.
"A lot depends on the labor content of what you're importing," says James Angel, a professor of economics at Georgetown University. "When you buy that iPhone, how much of the cost is actually reflected in the final assembly?"
For higher-end items like electronics, assembly accounts for a small part of the overall cost. "Skilled labor content -- that is, the research and development, the packaging, the marketing -- is the largest component of the total cost," says Angel.
For cheaper goods like clothing, labor and assembly expenses make up a much larger share of the overall cost of production. So rising labor costs are likely to have a bigger effect on the price of these less expensive goods.
And, if you think prices won't increase because manufacturing in China will shift to cheaper labor markets like Vietnam and Bangladesh, think again. Analysts say China's competitiveness as a locus for manufacturing is not based on price alone, but rather on a number of factors including the quality of the output, delivery lead time and the country's flexibility in meeting different order requirements.
We've compiled a list of goods likely to become more expensive for U.S. consumers as production costs in China continue to rise: