A recent study by a global business strategy consultant offers an upbeat prediction for beleaguered U.S. manufacturers.
"We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015," said Harold L. Sirkin, senior partner at the Boston Consulting Group. "As a result of the changing economics, you're going to see a lot more products 'Made in the U.S.A.' in the next five years."
The conclusion rests on several factors: Chinese wages, which are rising about 17 percent each year; the inevitable rise in the value of China's currency, which will make Chinese exports more expensive; and higher inventory and shipping costs.
The scenario makes sense to Chris Kuehl, an economic analyst with the Fabricators and Manufacturers Association. He said its 2,100 metal-bending members were already benefiting from China's diminishing cost advantage.
"They are getting business today that they did not get two or three years ago when they were losing to Chinese sourcing," Kuehl said. "It's considerably more of a level playing field than it may have been four or five years ago."
Not everyone believes that salvation is at hand.
Alan Tonelson of the U.S. Business and Industry Council characterized predictions of cost parity with China as somewhere between "over-optimistic" and "wishful thinking." He said they ignored many factors that influence companies' decisions to invest in China or the United States. Labor costs are only one of them.
The council, which represents about 2,000 small and medium-size manufacturers, has been a vocal critic of China keeping the value of its currency artificially low. That eliminates U.S. jobs by making American exports more expensive. The council, labor unions and others said massive Chinese government subsidies also disadvantaged U.S. industry.
"If labor costs are in fact rising, it would be relatively easy for the Chinese government to offset that rise with greater subsidies," Tonelson said.
Rising wage rates do not tell the whole story. Chinese manufacturers do not shoulder the health care and retirement benefit burden their U.S. counterparts do, said David Iwinski Jr., who formerly managed China and Southeast Asia operations for Respironics Inc., a medical supply company based near Pittsburgh.
Kuehl expects political unrest from China's vast, untapped pool of labor will limit Chinese productivity gains as the government pushes employment over productivity. He said bankers had told him the Chinese government had vetoed machine tool purchases because the equipment would reduce the number of workers a factory needs.
Kuehl believes China remains focused on manufacturing cheap consumer goods, a conclusion Tonelson and Iwinski said is wrong.
"The old saw about the Chinese making cheap junk while the U.S. makes high-value goods is a perception either naive or 15 years out of date," Iwinski said.
There is evidence that U.S. industries are benefiting from the "re-shoring" of jobs, bringing them back from China and other countries to the United States.
The trend is gaining strength as companies make more realistic assessments of the costs of doing business overseas, said Harry Moser, former president of machine tool producer GF AgieCharmilles and founder of the Reshoring Initiative. The Kildeer, Ill., organization promotes the benefits of U.S. sourcing.
Moser said companies often overlook overseas costs including political risks, threats to their intellectual property and logistics. Other manufacturers prefer locating their operations closer to either their suppliers or their customers, he said.
Re-shoring "will happen sooner and will happen to a greater extent if companies recognize these greater costs of offshoring," Moser said.
(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
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