Declining manufacturing costs in the U.S. on par with Eastern Europe

Factory Worker Checking Goods On Production Line
Source: DollarPhotoClub

A report published today claims that U.S. manufacturing is on its way to becoming more competitive than China’s. At present, the report’s authors write, “Overall costs in the U.S. are 10 to 25 percent lower than those of the world’s ten leading goods-exporting nations other than China” and on par with Eastern Europe.

The report prepared by The Boston Consulting Group, looked into manufacturing costs in the 25 biggest exporting countries in the world. It found that only seven countries had lower manufacturing costs than the United States did this year, and in terms of improvements in competitiveness within the last decade only India, Mexico and the Netherlands have improved their competitiveness ahead of the U.S.

Ten years ago, a manufacturing giant like China had 14 percent lower manufacturing costs than the US. In 2014, this gap narrowed to only 5 percent. If the trend continues, U.S. manufacturing will be less expensive than China’s by 2018.

Over the past decade, labour costs, adjusted to reflect productivity gains, shot up 187 percent at factories in China, compared with 27 percent in the United States. The value of China’s currency has risen more than 30 percent against the U.S. dollar over the past decade making Chinese exports more expensive.
Energy is also an important factor in the change. While the U.S. enjoyed low gas prices thanks to the shale gas revolution, Chinese electricity costs rose 66 percent.

Brazil has lost even more ground than China. In 2004, manufacturing was 3 percent cheaper in Brazil than in the United States. By 2014, Brazil was 23 percent more expensive. Brazilian factories didn’t improve efficiency enough to offset rising energy and labor costs.

The countries where manufacturing was cheaper than in the United States are Indonesia, India, Mexico, Thailand, China, Taiwan and Russia.

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