Study: Three Million Jobs Could Return to the U.S. from China

Oct. 20, 2011
But Mexico could prove to be a lower-cost alternative to the United States as a production center.

Rising wages in China and increasing transportation costs could result in a mass return of jobs to North America, says Chris Kuehl, an economic analyst for the Fabricators & Manufacturers Association.

Kuehl referenced a Boston Consulting Group study that projects the trend could result in up to 3 million jobs returning to the United States over the next five years.

Wages in China have been rising at a rate of 15% to 20% per year, according to the Boston Consulting Group study released Oct. 7. Among the industries that would most likely shift jobs back to North America include transportation goods, electrical equipment, plastics, fabricated metal products and machinery.

Improving productivity in the United States related to new technology will also play a role in jobs returning from Asia, says Kuehl, whose organization represents the metal forming and fabrication industry.

"The revolution in manufacturing is in technology and robotics, and it has been taking place for some time," says Kuehl in a statement released Oct. 19 by the Fabricators & Manufacturers Association. "The U.S. manufacturer employs far fewer people than in the past, but the output is setting records. This has allowed the U.S. to compete globally for manufacturing business, and it has allowed many in the U.S. sector to regain some business from overseas suppliers."

Mexico on the Rise?

But the United States may not be the lowest-cost alternative for U.S. manufacturers wishing to move closer to home. Mexico has become a destination for manufacturers that want to save transportation costs but maintain their low-cost labor advantage.

Mexico can offer easier transportation and less stress than Asia as a low-cost production center, says Mark Hehl, president of manufacturing consulting firm Hehl & Associates.

"A lot of companies are looking at the fact that you're on the same time zone," said Hehl during an IndustryWeek online conference. You don't have to worry about coming home to dinner after working 10 or 11 hours a day, come home and get on the phone at 9:30 for a conference call."

Mexico could provide an even greater advantage if Mexican truckers are allowed to enter the interior United States as part of a provision under the North American Free Trade Agreement, Hehl says.

The Associated Press reported Oct. 19 that the first Mexican carrier could cross the border into the United States within days.

Republican Rep. Duncan Hunter and Democratic Rep. Bob Filner, both of California, plan to protest the move at the border to express concerns about the pilot project.

The potential for new jobs in the United States related to China's cost increases will be lost if the United States continues to approach trade in a hostile manner, Kuehl says.

"The U.S. is still suffering sanctions from Mexico over its refusal to allow Mexican trucks to travel freely in the U.S.," Kuehl says. "There are Chinese trade sanctions coming as a result of Senate action on Chinese currency policy, and Canada is fighting the U.S. over accusations that Canada is providing incentives to use Canadian ports instead of the ports in Los Angeles and Long Beach."

In its report, Boston Consulting Group concludes that some production migrating from China will end up in Mexico but not as significantly as some people might think. That's because the United States has a skilled-labor advantage over Mexico, says Douglas Hohner, a Boston Consulting Group partner and coauthor of the report.

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