Will the U.S. see a "reshoring," manufacturing resurgence?
The Washington Post's David Ignatius says there may be a manufacturing resurgence in America's future. And just how might U.S. industry bounce back?
Ignatius cites two new reports that foresee a rosy turnaround for both America's "dependence on foreign energy" and the "decline of the manufacturing sector in the face of lower-cost foreign competition."
According to Robin West, of PFC Energy, a potential expansion of oil and gas production from shale could transform America into the "world's No. 1 producer of oil, gas and biofuels" by 2020. This would mean surpassing the "energy superpowers" of Russia and Saudi Arabia.
It's certainly a stunning scenario to contemplate, and West forecasts that combined imports of oil and natural gas could fall to 22% by 2020 (not including Canadian oil). However, it's unclear whether this anticipated shale oil production would come at a lower logistical and environmental cost than current technology allows.
The other big development would be an overall return toward U.S.-based manufacturing. Ignatius quotes the Boston Consulting Group (BCG) on potential "reshoring" of manufacturing. BCG suggests several reasons why U.S. manufacturing could become more competitive, including the continuing low cost of electricity in the U.S. However, BCG predicts that China's labor cost advantage will shrink in the coming years, "to the point that many manufacturers will prefer to open new plants in the U.S."
The potential parity in cost structures for both China and the U.S. would be based on Chinese wages rising to some degree while the U.S. continues to maintain a much greater level of workplace productivity. This could mean that "effective labor rates" in China might rise to "60 percent of those in America." BCG says that such reduced cost savings would mean U.S. firms no longer finding it worthwhile to tolerate "the risks and volatility of operating in China."
There's one flaw in all of this reasoning, however. It overlooks the fact that incredibly productive U.S. workers have already seen their wages stagnating in recent years. To suggest that if their wages remain low, U.S. manufacturing can become competitive with Chinese manufacturers offers worrying proof that the "race to the bottom" continues apace.
What's needed to support a first-world U.S. economy is a strong export profile-- one that brings money into the U.S. economy while sustaining middle class jobs. Low wages for U.S. workers will not spark a middle class boom.
It remains to be seen whether the brave new world Ignatius envisions will come to be, but let's hope a thriving U.S. economy is part of it.
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