Is the U.S. Poised for a Manufacturing Renaissance?

Labor and energy costs will be especially important sources of U.S. competitive advantage in manufacturing

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As explained in a previous Boston Consulting Group (BCG) report, when the many risks and hidden costs of managing extended global supply chains are taken into account, it will be just as economical to manufacture many products in the U.S. if those goods are sold in the U.S.

Labor and energy costs will be especially important sources of U.S. competitive advantage in manufacturing. Adjusted for differences in worker productivity, which is considerably higher in the U.S., average labor costs of the other large developed economies will be 20 to 45 percent higher than those of the U.S. Only a decade ago, the same U.S. worker cost only 12 percent less than the average factory worker in Europe.

Inexpensive natural gas will also boost U.S. competitiveness. For the foreseeable future, thanks to the recovery of vast U.S. underground gas deposits of shale, natural gas is likely to remain 50 to 70 percent cheaper in the U.S. than in Europe and Japan, BCG predicts. “That will translate into significantly lower costs for electricity generation, for fuel used to power industrial plants, and for feedstock used across many industrial processes,” said Justin Rose, a BCG principal and coauthor.

Although some of the U.S. gains will come from making products that otherwise would have been imported from Europe and Japan, other gains will come from higher U.S. export shares in key international trade lanes. For example, in many industries, the U.S. will be significantly more cost competitive than Europe as an export base for Asia. In addition to lower labor and energy prices, it is 59 percent cheaper on average to ship goods from the U.S. to Japan than it is to ship from Europe to Japan. That’s because the U.S. is closer to Japan, and rates are much lower for containers departing U.S. ports, where there is significant overcapacity. Similarly, the U.S. will be more attractive than Japan as a base for supplying many goods to Europe.

U.S. exports have risen by 30 percent since 2006, far outpacing growth in gross domestic product. “The signs pointing to continued export growth offer further evidence that the U.S. is poised for a manufacturing renaissance between 2015 and 2020,” said Harold L. Sirkin, a BCG senior partner and coauthor of GLOBALITY: Competing with Everyone from Everywhere for Everything, deals with globalization and emerging markets

About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]

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