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OM in the News: Why U.S. Manufacturing is Poised for a Comeback

June 14, 2014

us manufacturingManufacturing in the U.S. is starting to make a comeback, and is poised for even bigger gains in the years ahead, opines The Wall Street Journal (June 2, 2014).  The number of factory jobs has started to rise after plunging for decades, edging up by about 600,000 over the past 4 years to more than 12 million. Some U.S. companies are bringing jobs back home, and foreign businesses are setting up shop. “The economics of the world are changing in favor of U.S. manufacturing,” says Boston Consulting Group. Here are 4 proposals why this is so:

1: U.S. Costs Are Getting More Competitive. While wages soar at double-digit rates in China and some other emerging countries, they have stayed roughly level in the U.S. in recent years, narrowing the gap between America and Asia. China’s overall manufacturing-cost advantage has shrunk to just 4%. When wages are adjusted for productivity and the costs of shipping and inventories are included, it can be more economical to make some products in the U.S. than in Asia. Further, the surge in U.S. production of oil and natural gas, made possible by fracking, has pushed down energy costs.

2: Companies Are More Eager to Produce Near Their Customers. Companies are increasingly focused on reacting quickly to changes in demand, which is a lot easier when they’re making their products close to the customer. Manufacturing here can reduce the time needed to obtain goods to days or weeks from the 2 months needed to ship goods across the Pacific and get them through customs.

3: The Political Climate for Manufacturing in the U.S. Has Improved. State and local governments in the U.S. now are competing fiercely for investments and offering some rich packages. The declining power of U.S. unions also encourages some manufacturers to set up here rather than Europe or elsewhere.

4: Foreign Companies Are Betting on U.S. Manufacturing. China remained the No. 1 destination for foreign direct investment in 2013, but its total last year rose just 2% from 2012 to $258.2 billion. The U.S. attracted $193.4 billion, up 16%, to rank No. 2.

Classroom discussion questions:

1. Ask your students to make a rebuttal to each of these 4 cases.

2. Which factor do you think is most important?

 

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