Manufacture This

The blog of the Alliance for American Manufacturing

Well, this is different.

China is “under pressure” on the manufacturing front, losing ground to nations such as the United States whose cost competitiveness makes it attractive to companies looking to build production capacity.  

That’s according to a new report from the Boston Consulting Group (BCG), which studied changes in direct manufacturing costs since 2004 among the world’s top 25 largest goods-exporting nations. As BCG reports:

Years of steady change in wages, productivity, energy costs, currency values, and other factors are quietly but dramatically redrawing the map of global manufacturing cost competitiveness. The new map increasingly resembles a quilt-work pattern of low-cost economies, high-cost economies, and many that fall in between, spanning all regions.”

BCG’s report blows much of the conventional wisdom about the state of global manufacturing out of the water. China joins nations such as Brazil, Russia, Poland, and the Czech Republic in losing competitiveness due to a combination of factors. Australia and several Western European also are losing ground.

Meanwhile, the United States and North American neighbor Mexico are named in the “Rising Stars” category, with BCG citing low wage growth, sustained productivity gains, stable exchange rates and energy cost advantages among the top reasons for the new advantages. BCG even notes that “[A]t the factory gate, China’s estimated manufacturing-cost advantage over the U.S. has shrunk to less than 5 percent.”

The BCG report suggests that the long-predicted U.S. manufacturing resurgence is actually beginning to show signs of happening. But don’t pop that bottle of California sparkling wine just yet — manufacturing employment is still lagging.

While manufacturing jobs saw significant gains over the past three months, manufacturing has only recovered about 30 percent of the jobs lost during the Great Recession. And President Obama is only about one-fifth of the way toward his goal of creating 1 million new manufacturing jobs in his second term.

And while BCG cites low wages among the reasons for the U.S.’s increased global competitiveness, they actually are likely to hinder manufacturing growth. As we’ve previously argued, low wages might be behind the so-called “skills gap” — why would workers spend time in training programs for advanced jobs that do not pay adequately, after all? Pay workers appropriately, and we think they’ll jump at the chance to train for those jobs.

That said, the BCG report is encouraging for American manufacturing — especially since there are still many things that policymakers can do to increase America’s global manufacturing competitiveness.

Congress and the President should work together to implement a long-term infrastructure investment plan that includes Buy America preferences to rebuild America and create jobs. (As we noted on Tuesday, China is already taking action to improve its infrastructure.)

America also should take action to enforce trade agreements and eliminate currency manipulation, which will give U.S. manufacturers a fair opportunity to compete on the global market.

Chart: Boston Consulting Group.