Surprise! The U.S. is poised to be a rising star in manufacturing.

April 25, 2014

Surprise! The United States is positioned to become a rising star in manufacturing.

After years of hand-wringing about the expense of making things in America, a new report from the Boston Consulting Group says that’s all changing. The shift is due in part to stagnant wages — at least that’s potentially good for something — and to a greater extent, the abundance and declining cost of natural gas.

In fact, there’s a bit of a role reversal underway.

Five economies generally regarded as low-cost bases for manufacturing — China, Brazil, Czech Republic, Poland and Russia — are getting relatively more expensive. The reasons: wage increases, slowing productivity growth, currency swings and steep increases in energy costs.

The U.S. is getting cheaper, along with Mexico.

The reasons: wage stability, increasing productivity, a stable currency and, most dramatically, a sharp decline (50 percent) in the cost of natural gas since 2005, a result of the boom in shale gas.

In a press release accompanying the report, BCG’s Michael Zinser said:

While labor and energy costs aren’t the only factors that influence corporate decisions on where to locate manufacturing, these striking changes represent a significant shift in the economics of global manufacturing.

There are few signs that the news has caught up with U.S. companies that continue to shun the U.S. for supposedly cheaper nations. According to a recent report by the Congressional Research Service:

China displaced the United States as the largest manufacturing country in 2010, as the United States’ share of global manufacturing activity declined from 30% in 2002 to 17.4% in 2012.

“Many companies are making manufacturing investment decisions on the basis of a decades-old worldview that is sorely out of date,” wrote Harold L. Sirkin, a BCG senior partner and a coauthor of the analysis. “They still see North America and western Europe as high cost and Latin America, eastern Europe, and most of Asia — especially China — as low cost. In reality, there are now high- and low-cost countries in nearly every region of the world.”

Fred Barbash, the editor of Morning Mix, is a former National Editor and London Bureau Chief for the Washington Post.
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