China Projected to Lose Manufacturing Edge over U.S. By 2016

China Projected to Lose Manufacturing Edge over U.S. By 2016
Source: Manufacturing Technology, May 19, 2011.


According to recent market data and analysis, leading manufacturing sector economist Dr. Chris Kuehl of the Fabricators and Manufacturers Association (FMA) predicts the Chinese will lose significant market share and cost advantage over the U.S. by 2016.


Dr. Kuehl points out in FMA's current economic update newsletter Fabrinomics that the Chinese share of world manufacturing output in 1990 was just 3%, compared to its share of 19.8% today. The U.S.is just behind at 19.4%. And while China's productivity has increased 10 times in the last 20 years, it is still at one-third of the U.S.'s productivity, which is currently gaining almost 8% per year.


“The Chinese built quickly on a base of low wageworkers and significant government assistance as well as a very low valued currency that has allowed the growth of the export economy,” Dr. Kuehl says. “The future is not looking so positive for the Chinese, however. Wages are growing at 17% annually, while in the U.S. they are growing at 3%."


“The amazing observation from all this is that China is not going to have a cost advantage over the U.S. after 2015,” says Dr. Kuehl. “If, as expected, the Chinese are forced by inflation threats to start pushing the value of their currency higher, the balance could shift pretty quickly. Then there is the potential for much higher transportation costs as the price of oil rises. None of this will cause the U.S. manufacturer to shed a tear.”


Dr. Kuehl believes both China and the U.S. will eventually shift their attention back to their own domestic markets. “If China shifts its attention to its own domestic market and away from exports, it will allow U.S. producers to recapture domestic market share,” he says. “As the U.S. manufacturing company looks to its own market, it will be generally better positioned than the Chinese competitor as the distribution infrastructure in the U.S.is better suited than China’s.”
 

PPI Graphics: Offering Commercial Printing in Canton, Ohio