To Build or Not to Build
Posted by SCapozzola on September 9th, 2008
Rising energy costs have led some reporters to suggest that manufacturing may yet return to the United States. With the cost of transoceanic shipping climbing to record levels, it’s been suggested that companies would do better to manufacture in the U.S. rather than, say, China. In today’s Washington Post, Ariana Cha notes that “With fuel prices at record highs, the cost of sending a standard 40-foot container of goods has gone from $3,000 in 2000 to about $8,000 today, squeezing profit…Soaring energy costs, the falling dollar and inflation are cutting into what U.S. manufacturers call the ‘China price’– the 40 to 50 percent cost advantage once offered by Chinese producers.”
Piling on in the same enthusiastic vein, the Financial Times’ Richard Milne believes that manufacturers will start returning to the U.S. due to a “huge level of incentives some US states are offering companies to set up factories in their region.” Milne cites Tennessee as an example due to the $577 million in incentives it is providing Volkswagen to build a $1 billion plant in Chattanooga.
Unfortunately, the monkey wrench of higher energy prices is being offset by some stubborn facts on the ground. As Cha noted in her Washington Post piece, the outsourcing of American industry means that a “lot of equipment was disassembled and shipped abroad years ago.” Additionally, “China still offers advantages: Many raw materials remain cheap, and millions of skilled laborers work for wages that are a fraction of what their American counterparts get.”
Cha omits some of the even greater benefits that China enjoys in order to reach its infamously low price—namely, heavy subsidies, continued dumping, and a currency rigging that has aroused the ire of the U.S., EU, Japan, and even the WTO.
The result of China’s very focused mercantilism is the ongoing loss of U.S. manufacturing jobs. As McClatchy’s Kevin Hall reported last week, the U.S. shed a stunning 61,000 manufacturing jobs in August alone, a five-year high, which prompted AAM’s Scott Paul to state: “For those naive forecasters and pundits who believe that higher international shipping costs, more exports and a weaker dollar will inevitably lead to an American manufacturing renaissance, this is surely disappointing news.”
In a further sign that manufacturing has yet to rebound, the results of a recent Philadelphia Federal Reserve survey suggest that firms are actually increasing their offshore outsourcing. Nearly two-to-one, (11.1% to 6.2%) companies said they are continuing to offshore production rather than return it to the U.S.
The bottom line is that the conditions needed to rebuild U.S. manufacturing will come when Congress and a future Administration recognize manufacturing’s key importance in strengthening the U.S. economy. In addition to having a self-reliant national defense, boosting a strong domestic manufacturing base creates and sustains vital, technologically advanced jobs. China knows this. The EU knows this. Japan knows this. It’s time for our elected leaders to recognize this as well. And step one will be to stand up for domestic producers and start enforcing the very trade laws that were originally conceived to ensure a level playing field and unfettered market.
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