The US – One of the World’s Most Competitive Manufacturing Locations?

© 2014 Prof. Farok J. Contractor, Rutgers University

In 2012, I was one of the observers who indicated that American manufacturing productivity was, by far, the best in the world. (See my August 7, 2012 Yale Global Online article “7 Reasons to Expect US Manufacturing Resurgence,” which provided figures from the International Monetary Fund and the US Bureau of Labor Statistics.)

In all productivity indicators except one—where China topped the US—American manufacturing productivity was, and remains, unsurpassed by any other nation. Productivity indexes include “value of output per worker” or “value of output produced for every worker hour,” where the US remains way ahead. Most American citizens who visit a Walmart or a Macy’s and see the flood of Chinese products do not realize that, until 2010, the US was also the world’s biggest manufacturer by value. Of course, China produces the largest number of manufactured items. But China may produce 5 million toasters whose total value does not equal that of one Boeing 737 aircraft. Because America concentrates on high-value manufacturing—even with fewer items produced—total manufacturing value is, in 2014, the second highest in the world.

Moreover, I predicted that US competitiveness as a manufacturing location was likely to improve, while China would begin to lose its luster. A recent report by the Boston Consulting Group, using their own criteria, compared countries for their attractiveness as manufacturing locations. The report puts the US at very near the top, its competitiveness gaining on the Chinese.

The reasons include the rise in the exchange rate for the Chinese currency, the Yuan or Renminbi Yuan (RMB), and wage inflation in China that has been running lately at more than 15 percent annually in that nation’s eastern seaboard, where most of China’s factories are located. By contrast, not only do American companies invest much more heavily in automation, but US workers (especially low-skilled laborers) have seen their real (or inflation-adjusted) hourly wages fall in the last two decades. Union membership is below 10 percent of the US workforce, and the severe recession of 2008–2013 has even meant that 40 percent of recent American college graduates hold jobs that do not really require a college degree.

In short, American firms are typically superbly organized with IT processes and automated or robotic equipment and can hire educated, skilled workers at lower real wages than in the 1980s. Over the last two decades, the US dollar has weakened against several major currencies, such as the Euro and Yen, which in itself makes American products cheaper and more attractive than those of many European and Japanese competitors.

Does this indicate a US manufacturing renaissance? Probably not in a big way (for reasons I also detail in my Yale Global article). Besides, as nations such as Mexico and Viet Nam get their economic act together and improve their education and skills, such newly emerging nations can partially replace Chinese manufacturing. But American manufacturing is not going away, either, and will remain—by far—the most productive in the world.

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