Ten years ago, the cost of manufacturing in China was 25-30% cheaper than manufacturing in the United States. Many manufacturers chose to maintain plants in China instead of the United States in order to save on labor and other associated costs. In the present day, however, that is no longer true. The cost of production in China is rising fast, and it’s likely that within a few years, it won’t just be the same cost to make products in the United States. It will be cheaper.
Label-Land.com, an American label company that provides parents with an array of products to keep track of their children’s belongings, recognizes this trend and has built their company on the quality and efficiency offered by American production. They cite several reasons for the US “manufacturing revolution”:
Increased Costs in China
Three factors have contributed heavily to the increase in the cost of production in China. First, the cost of wages has risen substantially. Second, the expense associated with shipping products from China to countries around the world–most notably the United States–has gone up. Finally, China’s currency has risen in value much faster than the currency value in the United States.
China Isn’t the Cheapest Place for Manufacturing Anymore
A recent study has shown that the cheapest location for manufacturing is Indonesia. China is number five, behind India, Mexico, and Thailand. On that scale, which takes into consideration exchange rates, total labor cost, productivity growth, and energy expenses, America ranks at number seven. Estimates suggest that there is a price discrepancy of less than 5% between manufacturing costs for China and the US: for every dollar required to manufacture a product in the United States, it now costs 96 cents to make it in China. This gap is closing rapidly. Estimates suggest that by 2018, it might be 2% to 3% cheaper to manufacture goods in the United States than to make the same products in China.
The United States and Mexico are Showing Strong Gains
Over the last decade, the United States and Mexico have improved the costs of manufacturing the most substantially. The reasons? Lower energy costs, a steady increase in productivity among manufacturing workers, and fracking. Studies cited by fortune.com show that the US is fifteen years ahead of any of its fracking competitors, and that fracking has made a significant contribution to the overall growth of American manufacturing.
What Does This Mean?
Manufacturing jobs in the United States will be on the rise over the next several years as companies that had previously turned to foreign labor return home. There will be more factories, which will mean more jobs for American citizens. Fewer companies will choose to outsource their labor as China and other countries experience rising currency values. Some sources guess that the current factories in China won’t be abandoned, however. Instead, they’ll be turned to production for Chinese citizens.
When companies build manufacturing plants, they’re typically looking at least twenty-five years into the future and planning accordingly. Many companies are in the process of discovering that the changing trend leans toward a need for American manufacturing plants. Companies have to consider how these trends will change the face of American manufacturing for years to come.
This was written by Ben Lamm of Label-Land.com and the views expressed in this post are not necessarily the opinions of American Made Matters.