US and China to have manufacturing costs parity by 2015?

Paul Raven @ 09-05-2011

I’m going to offer this with a large pinch of salt, given that it’s a press release from a consulting firm, but the boldness of the claim is pretty impressive [via NextBigFuture]:

Within the next five years, the United States is expected to experience a manufacturing renaissance as the wage gap with China shrinks and certain U.S. states become some of the cheapest locations for manufacturing in the developed world, according to a new analysis by The Boston Consulting Group (BCG).


After adjustments are made to account for American workers’ relatively higher productivity, wage rates in Chinese cities such as Shanghai and Tianjin are expected to be about only 30 percent cheaper than rates in low-cost U.S. states. And since wage rates account for 20 to 30 percent of a product’s total cost, manufacturing in China will be only 10 to 15 percent cheaper than in the U.S.—even before inventory and shipping costs are considered. After those costs are factored in, the total cost advantage will drop to single digits or be erased entirely, Sirkin said.

Products that require less labor and are churned out in modest volumes, such as household appliances and construction equipment, are most likely to shift to U.S. production. Goods that are labor-intensive and produced in high volumes, such as textiles, apparel, and TVs, will likely continue to be made overseas.

Talk about a mixed bag of news. The prospect of working-class jobs returning to American shores must be something of a relief, but implicit in that return is the socioeconomic status of those “certain U.S. states” (and I think we can all guess which ones) as equivalent with China, the great economic enemy and exemplar of all things unAmerican. And it puts the lie to the notion of the unity of the US, too; sure, the top 1% of the country is rolling in money, but the bottom layer of the population pyramid is competing with China for the chance to make tchotchkes. Kinda puts the whole “USA! USA!” chanting from last week into perspective, doesn’t it? If this is a victory condition, I’d hate to be losing the game. (Note use of sarcasm as a way to blunt the pain; things over here on Airstrip One are looking grimmer by the day, too.)

Also implicit in the consultant’s outlook there is that the methodology of manufacture will remain essentially the same. Four years doesn’t look like a long time, but things move fast these days, and the 3D printing and fabbing industry is edging closer and closer to the point where it becomes a big grenade in the labour punchbowl. Still, I guess someone’s gonna have to make the 3d printers… up until the point where they can reliably self-replicate, anyway. (Shorter version: economics of mass production looking pretty screwed in the long term with respect to job creation. Profitability looking much better, but the 0.01% of the population who’ll benefit from it don’t need me to tell them that, I expect.)

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6 Responses to “US and China to have manufacturing costs parity by 2015?”

  1. SpeakerToManagers says:

    This doesn’t sound like a return of the manufacturing sector in the US to health; just another race to the bottom in which workers end up standing at work cells for 12 hours a day without bathroom breaks for the lowest wages possible. I wonder when management here is going to realize that there are things you can make and sell that allow you to pay workers a living wage and treat them like human beings? I’ve heard about a few companies figuring this out when they outsourced everything and lost a bundle of money because the things they were making were too complex or too dependent on internal compatibility between modules made by separate companies to fit well into the standard business process model.

    There’s another assumption in that prediction: that there will continue to be a high demand for the kinds of goods that China’s been building for export to the developed nations of the West. This assumes that our economies recover sufficiently for us to be able to afford those goods (and don’t get ripped off yet again by the Pirates of the Currency), and that all of our currently unemployed and soon-to-be-automated-out-of-jobs workers will have the money or the desire.

    Yes, manufacturing is going to be employing probably 5 to 10% of the current work force, and not in the long term either, more like 10 to 15 years (OK, that’s a long time in machine years, but not a large chunk of a human lifetime). The whole situation reminds me very much of Fritz Lang’s classic movie Metropolis, in which the capitalist who owns everything has a robot designed to replace his workers so he can kill them all off and not have to deal with them. I for one plan to resist our Galtian overlords if they try that.

  2. Michael Roberts says:

    Bah. Speaking from the Rust Belt here, I can assure you that while city and state governments will fall over one another for this stuff, I am eagerly anticipating that inflection point when fabbing goes viral.

    If you can get custom stuff made local, who needs Walmart? And if you don’t need Walmart, well – who really needs dollars?

    I fully expect to make a killing. Open-source tech is going to hit Indiana like the imploding shell of a hydrogen nuke.

  3. AnthonyA says:

    I’ve been predicting a middle course between the two extremes, myself, for some time. Manufacturing of inexpensive goods got moved first to Mexico, then to China, because transportation costs and labor costs were dirt cheap. As the standard of living rises, then the labor cost goes up, and manufacturing moves elsewhere. As the transportation costs go up, then manufacturing will tend to move closer to the market once more.

    So I’ve been predicting that manufacturing will return to the USA and the EU, as well as food production. If a greenhouse grown tomato can be cost-competitive with ones flown in from Argentina, then they will be grown closer to the supermarkets.

    However, I expect there will be a middle course between the 3D fab places and the big manufacturers of cheap stuff. There are economies of scale at the high end that are going to be difficult for the 3D fabbers to match. Just like there are local metalworking shops now, there will still be those shops, they’ll just add 3D fabbers or other tools, or be supplemented by 3D printing shops. Those will turn out small job lots, or one-offs, for a reasonable markup. And the big manufacturers will still make things like paper, because they can manufacture in huge quantities with a minimum of labor cost.

  4. Chad says:

    There are other variables other than cost which impact where something is manufacturered. US Steel recently brought all of their steel making operations back the U.S. because they couldn’t control the quality (one of the big automakers rejected a massive steel shipment).

    Concerning 3D printing, I’m not sure what those printers could actually make for me that I would buy. Most of the stuff I buy is food, fuel, electronics (I’m highly skeptical any 3d printer could make me an iPad), and media (no help here).

  5. Wintermute says:

    Apart from the fabtories, the greater ordnance, or dis-ordernance, looming up on the economic horizon is the coming AI/robotics revolution, which will fundamentally destabilize the pillars of the political and economic superstructure of the world to their cores. And if we don’t our collective heads out of the sand and/or our asses, we’re going to find ourselves in the Worst Of Times. Especially in the US where many (coughrepubscough) are still in the honeymoon phase with Reagan, and the demonization of government, which in the end may be our only ark to weather the economic Flood.

    To quote, “The Black Swan Guy” Nassim Taleb from his latest koanscape ‘The Bed of Procrustes’: “I find it inconsistent (and corrupt) to dislike big government while favoring big business– but (alas) not the reverse.”

    Government is not some great evil cyclopic beast which must be decimated at all costs, despite the Cold War and Reaganomics baggage that clouds every conversation about politics and economics in America. Rather, government and business are more akin to a treacherous waterway between a Charybdis and Scylla which must be navigated with eternal vigilance and caution. The mistake of governmental central planning is to assume that one can predict what precisely people wish to engage in for their pursuit of happiness, and that we can deny millenia of human evolution and history, deny the innate human drives for wealth, status and prestige and they will go away. The mistake of capitalism is that it assumes that competition is ever perfect, or even very good, which it isn’t; it is always rigged for similar reasons. People are not payed their wages based on their competitive value, people are payed what they can be forced to accept. Perhaps in some Adam Smithian Ivory Tower social experiment in which each individual agent in the system is the sole supply chain and means of production, such as farmer A selling corn to farmer B selling carrots. But in actual reality where corporatization and megaglomeration are the norm, free market competition is the continuation of war by less-obviously violent means. It is a tug-of-war in which the individual cogs of the machine play a game of Machiavellian chicken with the Owners, in the form of unions “bargaining” with management, each side attempting to squeeze as much wealth out of the other as possible. If options for employment can be limited, either through market domination, cultural programming, or brute force (examples include Chinese factories and Mexican predecessors, Wal-Mart jobs), then people can be forced into accepting horrible compensation even if their labor is actually worth much more. Thus wealth inequality escalates unnaturally (which is why the top 1% blue blooded royalty in the US have been getting exponentially richer and everyone else has been stagnating or dropping) and creates market distortions. Thus capitalism unchecked fails and ultimately becomes feudalism or klepto-plutocracy, which is where we’re at now. The multi-trillion dollar heist by the super-rich that led to the near-global meltdown of 2008-2009 is merely a symptom of the disease. The massive wealth inequality has ultimately allowed the rich to effectively buy the government, even the Obama Administration, thus breaking the government’s ability to keep the private sector in check.
    Ultimately, this feudalistic plutocracy will only accelerate and solidify with the coming AI and robotic revolutions, when finely tuned fluidic-muscled robots begin replacing first the bottom-rung ‘trinket maker’ Foxconn jobs, but in short order move up to higher and higher skill work. Especially in tandem with Watson 2.0 AIs who start edging out the knowledge workers, evicting whole floors of glass-pyramid office workers, pulling out that entire trophic crown jewel of the US, the “middle to middle-upper class” and forcing the former white collars to compete with the service jobs – the last bastions of human value, till android developers close the uncanny valley. The already struggling lower class, finding themselves competing with flailing PhDs for culinary and car repair jobs, are thus forced into…. Mexico City-like crime or bloody revolution, possibly both. And this is not even counting those ‘glories’ of transhumanism – true brain augmentation, which will undermine the very, very most basic equalizer of the playing field, which is that all are minds are the same, and poor John Rags can someday become Johnny Riches if he just applies his mind enough.

    The leverage point is uncertain right now, as both government and the private sector are essentially captured by the Ownership-class, who may continue to multiply their wealth simply by the fact that they own the means of production, the means of investment, and soon will no longer even require the human species in order to keep the gears of industry moving. This is already seen in areas like finance where human skill is increasingly elliminated and financial investment algorithms and AIs do the quant work, thus turning Wall Street into a skill-irrelevant winner-take-all game of who can acquire the most central and largest financial servers first. The same goes for other tech industries like search and social networking where network-lock-in is pervasive. This will eliminate the people’s check on the post-industrial complex as unions and strikes will become useless — corporations will just give the jobs to robots and AI who will never strike, never complain about overwork or hazardous environments, never tire. The (now unemployed) worker, will be even more powerless than he or she already is, and their cries of protest will be those of rats in cages of obsolescence. I think it’s obvious how Libya or Egypt-grade instability, possibly worse, could quickly arrive in such an environment. The government or some other global political social organization will be the only leverage we’ll have to stop a bloody revolution or worse. And I have serious doubts about any “abundance”. We’ve already got “abundance”, the cornucopic Future is here, it’s just not evenly distributed. We’ve already got enough GDP wealth thanks to tech-productivity in the US alone, if a bit more equally spread, to pay everyone enough for two houses, three cars, premium health care and quality education, IF people were paid what their toil was actually worth, rather than the minimum they will accept without uprising and cutting the heads off the royalty. Any “abundance” that arrives is quickly sucked up by the vampire squid of the Plutarchs in the form of ballooning CEO salaries, and the workers are rewarded with “efficiencies” euphemism for “pay cuts” and layoffs. Indeed, the only thing going exponential in this Singularity is the wealth of the wealthy. Abundance is a futurist’s rainbow, eternally hovering just out of reach, and as you chase it, you only find yourself ever more exhausted and thirsty, as all the water just keeps evaporating up into the heavens (of the Plutos).
    Yeah, we’ve got an uplink to Xanadu alright, a future stairway to “heaven” paved with gravel crushed from the bones of the arthritic, tirelessly slaving, subprime-debt laden, bargaining rightless, lower-caste Morlocks. AKA, everyone other than the Ownership class –who support for eternity the Trumps and Rothschilds and Goldman Sachs of the world through endless bailouts, whips cracked by slavedriving managerial super-AIs.

  6. GaryB says:

    Robots == good for us and good for US.