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The New Economy

As Chinese wages rise, US manufacturers head back home

By 2015, Chinese wages will be high enough that it will be just as cheap to manufacture goods for the US market in America. Some US manufacturers aren't waiting.

By David ConradsContributor / May 10, 2012

In this March file photo, Bruce Cochrane, owner of Lincolnton Furniture and fifth generation of his furnituremaking family, stands above the assembly floor at the Lincolnton Furniture Co. in Lincolnton, N.C. After moving work to China, Mr. Cochrane earlier this year reopened the local factory with a workforce of about 55, part of a small but growing trend called 'reshoring.'

Bob Leverone/AP/File

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Kansas City, Kan.

A & E Custom Manufacturing hums with the sound of robotic presses and welders, automated laser cutters, and other state-of the-art equipment that bend and cut metal into precise shapes. More than 900 sheet-metal components for the New York City subway come from this shop, as do aluminum parts for an electric sports car in Finland.

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The Kansas City, Kan., metal fabricator also made parts for a popular commercial cooking appliance until several years ago, when its customer moved production to China in order to save money. When quality and delivery problems in China couldn’t be resolved, the customer brought the work back and A & E is once again making the parts.

“We’re doing the work we used to do,” says A & E owner Steve Hasty. “We’re become more competitive in what we’re doing and the type of equipment that we’re using.”

Call it reshoring, backshoring, or onshoring: Twenty years after a flood of American manufacturers began moving to China to cut costs, a growing number of them are trickling back to the United States to improve quality and reduce delays. Many of the high labor-content products, like shoes, textiles and most clothing are probably gone forever. But in an unexpected and beneficial twist for the US economy, manufacturing, much of it high-skilled, is returning from abroad, primarily China. Some analysts go so far as to call it a renaissance in US manufacturing that will create high-paying jobs and provide crucial economic support for local communities across the country. 

“A combination of economic forces is fast eroding China’s cost advantage as an export platform for the North American market,” says Boston Consulting Group in a report issued last summer, which forecast that by sometime around 2015 it will be as economical to manufacture many goods for US consumption in the US as in China. BCG points to seven industries that are nearing that break-even point: electronics, appliances, machinery, transportation goods, fabricated metals, furniture, and plastics and rubber – all products with relatively low labor content and high transportation costs.

Some US companies have already made the move:

  • Two years ago, General Electric relocated the production of some water heaters from China to Louisville, Ky.
  • NCR has moved production of its automated teller machines from China to a plant in Columbus, Ga., that's expected to employ 870 people by 2014.
  • Ford Motor Co. is bringing up to 2,000 jobs back to the US from Mexico, China, and Japan.
  • Even toy company Wham-O now manufactures half of its popular Frisbees in California and Michigan, where it previously sourced its goods from China and Mexico.

How many jobs reshoring is creating is hard to determine. When a large, well-known company like Master Lock brings 100 jobs from China to its factory in Milwaukee – and earns a visit from President Obama and a mention in his State of the Union address – it’s big news. When a small contract manufacturer gets an order for components previously made offshore, it's barely noticed.

“It’s definitely happening,” says Harry Moser, founder of the Reshoring Initiative, a nonprofit organization based in greater Chicago whose goal is to bring manufacturing jobs back to the US. “It’s still small relative to its potential, but it’s growing.” He estimates reshoring has created at least 10,000 American jobs in the past two years.

One big factor behind the move is the rising cost of labor in China. When it joined the World Trade Organization in 2001, China's average manufacturing wage was 58 cents an hour, says Harold Sirkin, senior partner at the Chicago office of BCG and one of the coauthors of its report. Since then, Chinese wages have risen 15 to 20 percent per year.

 “The decisions you made when wages were 58 cents an hour are potentially going to look very different than when wages are around $6 per hour, as they will be in China in 2015,” Mr. Sirkin says. When the cost savings of manufacturing offshore is less than 10 percent of manufacturing domestically, companies start to reassess their decisions, he adds.

US manufacturers have also made strides through “lean” manufacturing techniques and automation, which have made factories far less labor-intensive than in the past, says Chris Kuehl, an independent economist in Kansas City, Mo., and an analyst for the Fabricators & Manufacturers Association, a trade group in Rockford, Ill. BCG estimates that the average US worker is now some 3.4 times more productive than the average Chinese worker. "That takes us out of having to compete with China for low-wage jobs, because we’re producing things that require more sophisticated robotics,” Mr. Kuehl adds.

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