Rising Chinese Labor Costs To Push 3 Million Jobs Back to the US by 2020

The danger of being the low cost producer is that customer loyalty lies with the cost, not the country of origin or its people.

Just ask anyone in western Pennsylvania or the British Midlands or even, now, China's southern Guangdong Province. Pursuing lowest cost production requires constant assessment and when those ratios change, it's time to move on.

The first inkling that this might be coming to China occurred when fuel costs made shipping costs more of a significant factor than they had been. Then, the law of supply and demand kicked in. So many companies located their facilities in China that Chinese workers started receiving better offers thanks, at first, to their experience and knowledge. But after a while, even experience and knowledge werent that important, the producers just needed bodies. And suddenly, the marginal cost of production in Ohio or Michigan or California began to look pretty good, especially when distance, quality and fear of intellectual property theft were thrown into the equation.

It is not like China's leaders dont get this. They have been talking for years about making the transition from a 'brawn' country to a 'brain' country. They keep track of how many Silicon Valley start-ups were founded by Chinese ex-pats or their children (many, as it turns out, but fewer than those from India, to their evident indignation...)and have stated that they would like to see the next generation of those innovative companies started in China.

But another aspect of this endless cycle is that it starts to move faster and faster. Three million jobs may migrate back to the US in the next ten years. The global economy giveth and then, it taketh. JL

Peter Marsh reports in the Financial Times:

Rising Chinese labour costs are changing the economics of global manufacturing and could contribute to the creation of 3m jobs in the US by 2020, according to a study being released on Friday.

The Boston Consulting Group analysis says the new jobs will be generated by a “re-shoring” of manufacturing activity lost to China over the past decade.
“Re-shoring is part of a broad trend that will emerge as ... production gradually swings back to the US,” Hal Sirkin, a senior partner at the consultancy, told the Financial Times.

The Boston Consulting Group estimates that the trend could cut the US’s merchandise trade deficit with the rest of the world, excluding oil, from $360bn in 2010 to about $260bn by the end of the decade. The shift would also reduce its soaring deficit with China, which reached $273bn in 2010 and has triggered an intense political controversy over China’s exchange rate policies.

“While Chinese labour costs are rising, US competitiveness has been improving,” says Mei Xu, the Chinese-born co-owner of Chesapeake Bay Candle, which makes candles and other home fragrance products. “We can invest in automation to make our candles in a factory near Baltimore for a similar cost to doing the same job in China.”

Chesapeake Bay Candle has created 50 jobs, with another 50 likely next year, since it invested in US production. Half of the company’s production is now US-based. Last year all of its products were made in China.

According to Ms Xu, her company can now react more rapidly to customer design requests, while cutting out hold-ups due to transport delays and customs bureaucracy.

The research will resonate in the White House where President Barack Obama has made a proposed strengthening of manufacturing a key part of his plans for a sustained economic recovery. Government statistics due on Friday are expected to show the US added only about 60,000 jobs in September, not enough to change the August unemployment rate of 9.1 per cent.

John Heppner, of the security division of Fortune Brands, a US consumer goods company, said its Wisconsin padlock factory hired 100 workers after “a reappraisal of whether it makes sense to base as much of our manufacturing in China”.

Others, however, are sceptical that re-shoring will continue to grow. “What’s going to stop the current trickle of extra employment from becoming a real trend is the behaviour by the Chinese government in persistently finding ways to help its domestic manufacturers,” said Scott Paul of the Alliance for American Manufacturing, a lobby group.