The Agurban from Boomtown Institute - Bringing Jobs Back to America from China: Can It Happen?

August 19, 2008

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The economics of global trade are starting to tilt back in favor of the U.S. to a degree unseen in a generation. Since 2002 the dollar has plunged by 30% against major world currencies and is falling against China's yuan. Wages in China are rising 10% to 15% a year. And spiking oil prices are driving up shipping rates. The cost of sending a 40-foot container from China to the U.S. has soared to upwards of $8000 from $3000 just eight years ago.

However, the map of global commerce can't be redrawn overnight. American factories and supplier networks in many industries have withered in the era of globalization, so it will take lots of time and capital before the U.S. can become a big player again. In electronics, for instance, there has been a mass migration of component makers to China in the past decade. Ditto for suppliers to Midwest heavy- equipment makers and North Carolina's furniture industry.

Rising costs are starting to eat into what American managers fearfully call the China Price, the once- formidable 40% to 50% cost advantage enjoyed by Chinese manufacturers-and demanded by customers. "Fuel prices just shot up so fast that everyone was caught flat-footed," says Allen J. Delattre, who heads Accenture's (ACN) global supply chain practice. "Now logistics costs are an overarching priority." Richard Sinkin, a San Diego consultant who scouts manufacturing sites in the U.S., Mexico, and China for multinationals, also senses a major strategic shift. "A lot of clients who were thinking about going to China are now saying, Not at these prices,'" says Sinkin. "The high cost of fuel is going to radically transform the way people look at the geography of their manufacturing."

Will China be able to keep its edge in the face of soaring costs? One factor that's widely overlooked is rising productivity. For the past decade, U.S. manufacturing productivity growth has averaged 4.8%. That's impressive for an industrialized nation, and bodes well for U.S. industry when the economy recovers. But productivity at medium and large Chinese manufacturers-the backbone of country's export boom-has averaged nearly 19% over the same period.

Expecting the U.S. to recapture industries that have already gone to China may not be realistic. But the new cost equation likely will influence many decisions about where to locate production in the future. America remains the world's biggest manufacturer, after all, because it's still the largest market for everything from drugs and packaged foods to high-end medical equipment. The U.S. may have as good a chance as anyone of being a strong player in nascent industries, whether next-generation wind turbines, medical devices with nano-scale sensors, or electric cars. The challenge will be to persuade reluctant venture capitalists and corporations to invest again in modern U.S. production facilities.

Sources: ShippingDigest.com, BusinessWeek.com

The Blog Log Visit my blog to see where I've been and what I have learned along the way.

On the road again... In addition to my travel blog I'll list my upcoming engagements in each issue of The Agurban. Come see me when I'm in your neighborhood!

Jack's Schedule

Upcoming Speaking Engagements:

August 26, 2008 - Bismarck, ND - North Dakota Rural Economic Development Conference

Sept. 9, 2008 - Henderson, KY - Northwest KY Forward Annual Meeting

Sept. 10, 2008 - Montgomery, AL - Alabama Communities of Excellence

Sept. 11, 2008 - Wapakoneta, OH - Auglaize County Economic Development Coalition

Sept. 16, 2008 - Kittanning, PA - Armstrong County Community Foundation

Sept. 18-19, 2008 - Arco, ID - Lost Rivers Economic Development Leadership Academy

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Jack Schultz is the CEO of Boomtown Institute and Agracel Inc., an industrial development firm majoring in rural America, author of Boomtown USA, and speaker. Boomtown Institute serves as an economic development mentor to communities across the United States, leading communities to realize their full potential.

Visit the Boomtown Institute website at www.boomtowninstitute.com Keep up with Jack as he tours the country on his blog! Read past Agurbans at Agurban Archives. To learn more about Agracel visit www.agracel.com.
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