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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.

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Other considerations also factor into reshoring decisions: transportation costs, proximity to customers, currency fluctuations, the benefits to innovation when design and production are under the same roof, and intellectual property risk, among others.

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For many companies, low wages overseas don’t outweigh the advantage of making goods closer to the customer. Outdoor GreatRoom Co., maker of outdoor products, brought production of fire pits and pergolas back to Minnesota in 2010 to reduce the several-month lag time in getting shipments from China . Now, the company can fill its orders in three months or less, which reduces the risk that the company is locked in to an older inventory that no longer corresponds with consumer tastes.

In the case of Big W Industries, which brought back the work to A & E for its commercial cooking appliance, the issue was quality.

 “We went overseas to try to cut costs,” says Chuck Nickloy, president of the Kansas City, Kan.,  firm. “We brought things back because of quality. We tried a couple of times to get the job done right, but the thousands of units we brought in were all substandard. Before it was over, we scrapped them all. It was a nightmare.”

Not all the manufacturing moving from China is coming back to the US. Some of it is going to lower-cost countries in Asia, like Vietnam and Singapore. Many US companies are likely to keep some production in China because they want to sell into its fast-growing domestic market. Other US firms are opting for “near-shoring,” moving manufacturing from Asia to Mexico or Central America, where they can take advantage of low wages but reduce transportation costs and other problems that go with having a supply chain that stretches halfway around the world.

Reshoring or even near-shoring may not work for everyone, cautions Mr. Sirkin, who consults with many manufacturing firms. “That may not be the right answer for you in the same way that rushing to China or Vietnam may not be the right answer.”

But if today's reshoring trickle turns into something much bigger, the benefits to the US economy look promising – and not just for manufacturers. By one estimate, each new domestic manufacturing job creates three additional jobs in the US, in logistics, transportation, construction, finance, and other areas. With a renewed focus on technical education, far from becoming a nation of hamburger flippers, the US could be poised to reclaim at least some of the 7.7 million manufacturing jobs it has lost since 1979. 

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