Is it possible that manufacturing may leave China and return to the US? This may be wishful thinking, but there are signs that we may be moving down that path. Consider the following from an AP article that appeared on many news outlets recently:
- Labor costs in China are increasing 15% per year since 2008. Workers are demanding better wages and working conditions due to a labor contract law that made them more aware of their rights
- Tax preferences for foreign companies expired in 2007
- Beijing decided to stop tethering the yuan to the US dollar. This allows it to appreciate and increase costs in yuan.
- Other costs are rising including land, water, energy and shipping costs
Wages for Chinese workers are still a fraction of the wages for American workers, but studies show that the overall cost advantage of manufacturing in China is shrinking. Many companies are responding by moving factories to cheaper areas farther inland or to other developing countries, such as Vietnam, Indonesia or Cambodia. In some cases, companies are shifting production back to the US. Wham-O has brought half of its Frisbee production to the US. Publishers may follow suit. A book that costs 48 cents to produce in China and ship to the US costs 68 cents to produce in the US. If costs in China go up by half, it will be about the same price as in the US and one could eliminate the 30 days needed for shipping.
As the standard of living in other parts of the world rise, the cost advantage of manufacturing outside of the US decreases. Eventually we will see manufacturing return to the US, but I don’t know if I will be around long enough to see it.