By Zachary Roth and Daniel Gross
Can jobs be America's next big import from China?
While touring a factory owned by Master Lock on Wednesday, President Obama urged manufacturers to bring jobs back to the U.S. "Right now we have an excellent opportunity to bring manufacturing back-- but we have to seize it," Obama said. Obama praised Master Lock during his State of the Union Address for re-shoring about 100 jobs from China to its Milwaukee plant.
Call it "insourcing," "onshoring," or "reshoring." The trend, while small, may pick up pace, as Harold Sirkin, a partner at Boston Consulting Group, tells Dan in the accompanying video. Sirkin, who has advised President Obama on the topic, is one of the co-authors of a lengthy report, Made in America — Again, which makes the case for an impending wave of reshoring. In recent years, globalization and the shape of the world's economy have pushed American companies — manufacturers and service providers alike — to look overseas for cheap labor. But some of these same trends may now be pushing employers to take another look at the U.S. "There's a pendulum that swings all the time," Sirkin says. "And now it is swinging back."
The rising cost of labor in China — wages in the thriving coastal regions are rising at a 15 percent clip — and the rising strength of China's currency, the renminbi, are combining to make Chinese-produced goods more expensive. Meanwhile, falling wages in the United States--thanks to high unemployment, weakened unions, and the continued growth of manufacturing in lower-cost states in the south--have helped make U.S. labor more competitive. Rising shipping costs, concerns about the time it takes to get goods to market, and the risk of intellectual property theft are also causing American companies to think twice about manufacturing in Asia. Finally, while American workers may cost more per hour than Chinese workers do, they put machines and automation to much greater use. "U.S. productivity is about 3.4 times as much as it is in China," said Sirkin. "We now produce about 2.5 times as much goods in the U.S. as we did in 1971, with 30 percent less labor.
Add it all up, BCG concludes, and for goods in which the labor content is moderate — about 25 percent of the total cost — China's cost advantage will decline to a mere 10 percent by 2015. When that happens, "appliances, television, computer equipment, furniture, machinery, plastic, and rubber -- those are the kind of goods that are likely to reshore," Sirkin says
The Obama administration is banking on this trend as a key stimulant to growth. As President Obama said at an 'Insourcing American Jobs forum in January, "I don't want America to be a nation that's primarily known for financial speculation and racking up debt buying stuff from other nations," he said. "I want us to be known for making and selling products all over the world stamped with three proud words: 'Made in America.' "
There definitely is something to the onshoring trend. In the past year, we've spoken with manufacturers of softball bats, windows, and cooking stoves who have decided to bring work back to the U.S. In addition to Master Lock, companies like Ford, Honda, General Electric, Caterpillar and Intel have insourced jobs.
Over the next decade, BCG projects that $100 billion in goods production can return to U.S. shores, and that the creation, or re-creation, of hundreds of thousands of jobs will help reduce the unemployment rate by 1.5 percent. The impact is potentially large because, as Sirkin notes, manufacturing has a significant multiplier effect. "For every manufacturing job created, there are another three created in the supply chain, the trucking system, and other areas."
Be prepared for further discussions of onshoring. Obama's message clearly dovetails with his political interests. Midwestern manufacturing hubs like Wisconsin, Ohio and Michigan are swing states that figure to be crucial to his re-election prospects. To encourage the trend, the Obama administration wants to scrap tax deductions for shipping jobs overseas, and offer new incentives for returning them to the United States. The administration is also pushing for a $2-billion-per-year tax credit to encourage manufacturers to invest in struggling communities. Meanwhile, Republican presidential candidates have spoken about the need to push China to revalue its currency higher — a move that would make onshoring more attractive. Former Sen. Rick Santorum has called for eliminating corporate income taxes for American manufacturers.
Manufacturing has been growing in the U.S. After falling every year since 1998, the number of manufacturing jobs rose in the U.S. in both 2010 and 2011. Since December 2009, the sector has added 300,000 jobs. Manufacturers added 50,000 people to their payrolls in January alone, the biggest monthly increase in a year.
That's clearly good news. But some perspective and caution is in order. Insourcing and manufacturing alone can't claw back the millions of jobs lost during the recession of 2008-2009. Sirkin and BCG say most of the gains from onshoring will come in the distant future. The optimistic case for reshoring rests on ever-rising costs in China, and further gains in productivity at home, trends that may not continue indefinitely into the future. So far, the trend is more of a trickle than a flood.
Zachary Roth is senior national affairs reporter at Yahoo! News
Daniel Gross is economics editor at Yahoo! Finance
Follow him on Twitter @grossdm; email him at firstname.lastname@example.org