The U.S. is at the start of a manufacturing renaissance that will generate two to three million jobs and provide $100 billion of added economic growth over this decade. This renaissance is being sparked by a trend that is both remarkable and rational.
What's remarkable is that manufacturers are starting to bring back jobs to the U.S. that just a few years ago they exported to China. What's rational is that they are doing so not out of some dewy-eyed patriotism but because it makes economic sense.
Wages in China are rising so rapidly that the insourcing vs. outsourcing calculus has changed. In 2000, U.S. wages were almost 22 times larger than those in China. By 2015, U.S. wages will be only four times larger. Adjusted for productivity, the differential shrinks even more. In the Yangzi River Delta, the epicenter of China's skilled manufacturing workforce, the effective wage rate will be about 61 percent of U.S. wages in 2015.
At those levels, it makes sense to return manufacturing of a wide range of goods , with moderate levels of labor content and high logistics costs, to the U.S. For an automotive part, where labor contributes one quarter of total cost, the total cost advantage for China shrivels to less than 10 percent.
Ten percent is a key threshold. When you factor in the risks and realities of doing business in China--weak intellectual property protection and rule of law, long lead times, and lack of proximity to key customers, among others--companies are willing to bring manufacturing back when the cost difference is in the single digits.
Within the next three or four years, that threshold will be crossed for seven key categories of goods: computers and electronics; appliances and electrical equipment; transportation goods; plastics and rubber; machinery; furniture; and fabricated metals. These goods account for about two-thirds of the annual $325 billion in imports from China.
The upcoming insourcing revolution is not just about rising wages in China but also the often-unheralded productivity of the U.S. The U.S. economy is 33 percent more productive than Japan and 25 percent more productive than Germany. This helps explain why Siemens is exporting gas power turbines, made in the U.S., to Saudi Arabia and Toyota has announced it would export cars made in Kentucky and Indiana to South Korea.
Economics is driving insourcing but government policy can facilitate it. Here are seven helpful steps that the U.S. government can take to create good jobs for our children and ensure the long-term success of the economy.
First, adjust tax policy to favor insourcing rather than outsourcing by providing a targeted tax credit for job creation in the U.S. and for the repatriation of funds to the U.S. that foster job creation. U.S. Senator Richard Blumenthal has proposed legislation to create tax credits for re-shoring.
Second, level the playing field by addressing key trade-agreement violations and insisting on stronger IP protection and an end to currency management by the Chinese government.
Third, secure and train critical talent: retain foreign students by issuing six-month green cards in selected disciplines that become permanent upon employment; subsidize job training for new and expanded manufacturing facilities; and create "vocational colleges" that combine liberal arts education with training in such trades as welding, plumbing, electrical, and computer-assisted manufacturing.
Fourth, rethink regulations that impair competitiveness without corresponding benefit.
Fifth, facilitate the creation of industry clusters -- such as Silicon Valley or, in an earlier era, Detroit -- that bring together competitors, suppliers, schools, and talent to create a winning ecosystem.
Sixth, encourage foreign manufacturers to locate facilities in the U.S., the largest domestic market and one of the lowest-cost in the developed world.
Seventh, change the perception that China is low cost and the U.S. is high cost and uncompetitive. Companies should "do the math" rather than just assume China is cheaper.
More than any major economy, the U.S. responds quickly to threats. We do not curl up in a ball or complain. We adapt and we thrive. We faced down a similar threat from Japan in the 1970s and 1980s, and we are doing it again.
US Businesses must also pay much lower (hourly wages) pay scales to US citizens in the USA that are well below the wages that they pay foreigners in foreign Asian nations in order to COMPENSATE for the additional costs of EPA compliance, additional US labor payroll costs that the National Healthcare, Unemployment Insurance, Social Security, and other Federal Government payroll taxes add on top of the direct costs of US labor payrolls, when economically justifying where to locate a new manufacturing facility.
Every country will have very high unemployment rates as the world tries to reach a balance. This cycle will last until the year 2035. If you wish to know what happens then you have to buy my book....
"A fool is a fool, regardless the day of the week". An introspective look at things that don't really matter in the great scheme of planet earth.
In fashion, we are seeing smaller lines and luxury brands bringing back production that once was overseas while other types of more boutique manufacturing are also starting to return in the various tech, electronic entertainment and other high value added businesses. But for those industries to thrive, many of them need to be located within mixed use, live/work communities which will allow for a 24/7 creative environment as opposed to large industrial parks that some are proposing to build in the middle our high cost urban area.
There are manufacturers adding jobs to the U.S. economy. This has been true every year for the last hundred years. But the net job picture is not pretty. Since 2001, 50,000 manufacturing jobs per month have been lost in the U.S. 2001 is the year that China was granted full WTO status (comparable to a Free Trade Agreement). (1)
The most reliable numbers comparing China labor costs with those of the U.S. are compiled by the Bureau of Labor Statistics (BLS), or at least they were. The BLS may stop this work. According to the BLS, the cost of Chinese and/or Indian labor was only 4% that found in the U.S. (2) Chinese and Indian labor costs are rising, and the cost of American labor is dropping, but convergence is not on the near horizon.
If we believe that everything is rosy, we will not make needed changes to the system. The forces for Protectionism (Tariffs) in North America and Europe is growing. Don't let false optimism take the wind out of the sails.
References:
1. http://www.crossroad.to/articles2/2012/economic-collapse/2-china-destroying-america.htm
2. http://www.economicpopulist.org/content/china-and-india-really-are-cheap-labor-manufacturing
Is the obverse of this statement: eliminate tax breaks for companies that outsource?
Further, to encourage insourcing, shouldn't there be an 8th point such as improvement of infrastructure to facilitate the movement of goods to market? How can America compete in an environment where, according to the American Society of Civil Engineers, it earns a "D" for infrastructure http://www.asce.org/PPLContent.aspx?id=2147484137
Amen.
That one point alone forced me to open plants off shore. Even if wages are higher in other countries (which they are in teo of the countries in which I have plants) these jobs won't come to the US unless we deal with the meaningless regulations that seem to be popular only in the US. Every business can deal with and pay for the backbone regulations like clean air, clean water, safe workplaces, etc. But paying for poltical favors in Africa or insect survival in Wyoming add costs with no commensurate benefit.
I'll be pleased if my net worth ever gets to a point where the "death tax" is a concern.
So once again it is the free market the black market that is coming into play.
http://www.heraldtribune.com/article/20120123/ARTICLE/301239999
Apple's Jobs to Obama: "jobs aren't coming back" to U.S.
http://market-ticker.org/akcs-www?singlepost=2850710
Apple’s supplier code of conduct dictates that, except in unusual circumstances, employees are not supposed to work more than 60 hours a week. Mr. Lai was soon spending 12 hours a day, six days a week inside the factory, according to his paychecks.
That's 72 hours, incidentally. Rather more than 60.
....the company’s dorms, where 70,000 Foxconn workers lived, at times stuffed 20 people to a three-room apartment, employees said.
What was Mr. Lai's rate of pay?
The story tells us -- he was paid $22 a day.
So now we have our answer, don't we? Apple wants college-educated workers, but the pay it offers for that college education is $22 a day, and that included overtime. That's about $2.20 an hour, assuming that Mr. Lai worked a six day, 60 hour week -- and the story says he often worked more.
Apple and others manufacturing in China aren't interested in American workers for two reasons:
We won't work for $22/day with a college degree -- in fact, such a wage is illegal in the United States.
We won't allow a company to have two industrial dust explosions in less than a year without someone winding up in serious trouble -- and perhaps in prison -- over the incidents.
A) America is the fourth easiest/best country IN THE WORLD in which to do business (according to the annual study by the World Bank) behind only Hong Kong, Singapore and New Zealand.
B) The Bureau of Labor Statistics keeps track of layoffs and "separations" and the reasons that they occur. In the first quarter of 2012, for every ONE layoff/separation due to "government regulations/intervention" there were ONE HUNDRED THIRTY due to lack of "business demand". And if you include all the other reasons for people getting laid off/separated, it turns out that regulations/intervention from the government account for about 0.3% of all layoffs/separations (i.e. there are over three hundred separations for reasons OTHER THAN regulations/intervention for every one due to regulations/interventions).
"Job killing regulations" is just ONE of the many lies that Republicans tell every day....
That thinking only works if you honestly believe that layoffs occur because of a single reason. No layoffs have ever occurred because of multiple reasons? Don't believe me go read the meta data on the survey. You are only allowed to respond with 1 reason.
You choose to view only the loss of employment as a source of statistics on why jobs leave the US. You might benefit by looking at the reasons why jobs are created as well. I added over 120 jobs in China and 30 jobs in India in 2011 and added none in the US. Pay and taxes had nothing to do with the reasons.
http://data.worldbank.org/indicator/IC.BUS.EASE.XQ
Go to the above website and get a clue. Seriously.....
I wasn't saying ANYTHING about "the loss of employment as a source of statistics on why jobs leave the US". I don't even know what that means....
If you're in manufacturing, you'll be bringing those jobs back to the USA within five years, I predict. At the rate the cost of energy and labor is increasing in those places (not to mention the growing labor unrest and other issues) you'll be back.
And thanks for being such a patriot and taking all those jobs overseas. By the way, you DO remember that REPUBLICANS controlled Congress for TWELVE STRAIGHT YEARS from 1995-2007, right? So whatever rules and regs and tax structures and pay laws there were that forced you to send those jobs overseas, THEY WERE PUT IN PLACE BY REPUBLICANS!! But go ahead and blame it on Dems and Obama. Prove your ignorance one last time....