Higher labour costs in China begin to push manufacturing jobs back to US, study finds

Peter Marsh in London

Financial Times

October 7, 2011 ET

Ris­ing Ch­inese labour costs are chang­ing the eco­nomics of glob­al manufac­tur­ing and could con­tribute to the cre­ation of 3m new jobs in the US by 2020, accord­ing to a study be­ing re­leased today.
The Boston Consul­ting Group anal­ysis says the new jobs will be generated by a “re-shor­ing” of manufac­tur­ing activ­ity lost to China over the past decade. “Re-shor­ing is part of a broad trend that will emerge as . . . production gradually swings back to the US,” Hal Sirkin, a se­nior partner at the consultancy, told the Financial Times.
The Boston Consul­ting Group es­ti­mates that the trend could cut the US’s mer­chan­dise trade       

deficit with the rest of the world, excluding oil, from $360bn in 2010 to about $260bn by the end of the decade. The shift would also reduce its soaring deficit with China, which reached $273bn in 2010 and has trig­gered an intense po­lit­ical con­tro­ver­sy over China’s exchange rate policies.

“While Ch­inese labour costs are ris­ing, US com­pet­itiveness has been improving,” says Mei Xu, the Ch­inese-born co-owner of Chesapeake Bay Can­dle, which makes can­dles and oth­er home “fragrance prod­ucts”. “We can invest in automation to make our can­dles in a factory near Baltimore for a similar cost to do­ing the same job in China.”
Chesapeake Bay Can­dle has cre­ated 50 jobs, with an­oth­er 50 likely next year, since it invested in US production. Half of the                         

compa­ny’s production is now US-based. Last year, all of its prod­ucts were made in China. Accord­ing to Ms Xu, her compa­ny can now re­act much more rapidly to customer design requests, while cutting out hold-ups due to trans­portation delays and customs bu­reaucracy.

The research will res­onate in the White House where Pres­ident Barack Obama has made a proposed strengthening of manufac­tur­ing a key part of his plans for eco­nom­ic recovery.
John Heppner, chief exec­utive of the secu­rity divi­sion at Fortune Brands, a US consumer goods firm, said the compa­ny’s Wisconsin padlock factory hired 100 workers af­ter “a reappraisal of whether it makes sense to base as much of our manufac­tur­ing in China”.
Oth­ers, howev­er, are sceptical that                               

“re-shor­ing” will con­tinue to grow. Scott Paul of the Alliance for American Manufac­tur­ing, a lobby group, said: “What’s go­ing to stop the current trickle of extra employ­ment from becom­ing a re­al trend is the behaviour by the Ch­inese govern­ment in persis­tently find­ing ways to help its do­mes­tic manufac­turers.”

Copyright The Financial Times Lim­ited 2011