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Manufacturing: The Pendulum Swings Back to America

March 30, 2012

Predictions about the demise of U.S. manufacturing tend to overlook a very crucial trend: the underlying math of global manufacturing is starting to swing in America's favor. New research by The Boston Consulting Group shows that the economic impact could be significant.

We estimate that the U.S. is poised to add around $100 billion in manufacturing output in this decade through higher exports and the return of production work from China in a range of industries that have historically experienced offshore outsourcing. This added production could create 600,000 to 1 million direct factory jobs and 2 million to 3 million total jobs, putting a significant dent in the U.S. unemployment rate and trade deficit.

These are among the findings of U.S. Manufacturing Nears the Tipping Point: Which Industries, Why, and How Much?, the latest installment in a series of BCG articles on the shifts in global cost structures that are likely to cause companies to reassess where they manufacture products. The report identifies seven broad groups of industries—machinery, computers and electronics, appliances and electrical equipment, fabricated metals, furniture, transportation goods, and plastic and rubber products—accounting for around 70 percent of the goods that the U.S. imports from China, where this shift is likely to be most pronounced. We estimate that production of 10 to 30 percent of goods that the U.S. imports from China in these industries could return to the U.S.

There is much more to the coming American manufacturing renaissance than the rising costs in China documented in previous BCG research. The U.S. has also become a lot more competitive over the past decade. American manufacturers that survived, adapted, and rose to the challenge of low-cost imports have become more productive. The dollar has depreciated against the euro, the Chinese renminbi, and other currencies. And the U.S. workforce has become more flexible.

But perhaps most important, companies are paying more attention to the total costs of delivering a product made in China compared with one manufactured closer to its U.S. consumers. They are realizing that when labor content, productivity, logistics, and the many indirect costs, risks, and headaches of managing supply chains extending halfway around the world are fully accounted for, it often makes better economic sense to manufacture in the U.S., if that is where the company’s products are ultimately going to be sold.