August 27, 2015 2 min read 7 Comments
"Outlays for factory-related structures jumped in January through March," says the National
Association of Manufacturers, "surging at a 95 percent pace" and productivity in the second quarter of the year was the strongest we have seen in the past year and a half. Are we setting ourselves up for a comeback? Possibly.
What factors could cause a revival in American Manufacturing? Well there are several reasons, labor costs, energy costs, transportation and proximity to customers, to name a few.
According to Fortune Magazine, the cost gap between manufacturing in China vs. the U.S. has shrunk to nearly 5%. This is due to increased wages in Asia, increased transportation costs and an increase in U.S. productivity.
The U.S. also has an advantage when it comes to energy costs. The U.S. has become one of the world's largest natural gas producers providing a competitive advantage to industries that require a lot of power. Natural gas currently costs 3-4 times as much in China.
When it comes to American made clothing and 'fast fashion,' being close to customers allows companies to adapt to a rapidly changing fashion market and reduce transportation times.
On the surface America seems to have several advantages to better compete in the global market, however, we still have many challenges to overcome. As our manufacturing base grows we can expect to have a shortage of qualified labor. According to the Boston Consulting Group, by 2020 there will be a shortage of 875,000 machinists, welders, industrial-machinery mechanics and industrial engineers. Many of these workers are age 50+ what do we do when these people retire?
We also must deal with countries like China that manipulate their currency. Currency manipulation distorts trade flows by artificially lowering the cost of U.S. imports and raising the cost of U.S. exports.
There are many benefits to manufacturing in the USA and our opportunity is NOW if we are going to turn things around. We need the support of the American consumers, we need to look for the 'Made in USA' label. Our government also needs to be negotiating better trade policies; NAFTA hurt us in the past and the TPP is next in line.