U.S. Manufacturing Strength Driving Exports

Aug. 30, 2013
Study projects that the U.S. will capture $70 billion to $115 billion in annual exports from other nations by the end of the decade.

Despite the recent focus on the U.S. trade deficit, little attention has been paid to the fact that the country’s exports have been growing more than seven times faster than GDP since 2005, according to a report from the Boston Consulting Group. As a share of the U.S. economy, in fact, exports are at their highest point in 50 years.

The Consulting firm projects that the U.S., as a result of its increasing competitiveness in manufacturing, will capture $70 billion to $115 billion in annual exports from other nations by the end of the decade. About two-thirds of these export gains could come from production shifts to the U.S. from leading European nations and Japan. By 2020, higher U.S. exports, combined with production work that will likely be “reshored” from China, could create 2.5 million to 5 million American factory and service jobs associated with increased manufacturing, the firm concludes.

“Our perspective is based on shifts in cost structures that increasingly favor U.S. manufacturing,” the company states. “In the first two reports in our Made in America, Again series, we explained how China’s once overwhelming production-cost advantage over the U.S. is rapidly eroding because of higher wages and other factors—and how these trends are likely to boost U.S. manufacturing in specific industries. Our analysis suggests that the U.S. is steadily becoming one of the lowest-cost countries for manufacturing in the developed world. We estimate that by 2015, average manufacturing costs in the five major advanced export economies that we studied—Germany, Japan, France, Italy, and the U.K.—will be 8 to 18 percent higher than in the U.S.”

Among the biggest drivers of this advantage will be the costs of labor (adjusted for productivity), natural gas, and electricity, the firms analysts report. As a result, they estimate that the U.S. could capture up to 5 percent of total exports from these developed countries by the end of the decade. The shift will be supported by a significant U.S. advantage in shipping costs in important trade routes compared with other major manufacturing economies.

The most profound impact will likely be on industrial groups that account for the bulk of global trade, such as transportation equipment, chemicals, machinery, and computer and electronic products. Production gains will come in several forms. In some cases, companies will increasingly use the U.S. as a low-cost export base for the rest of the world, the firm believes. In other cases, U.S. production will displace imports as both U.S. and foreign companies relocate the manufacturing of goods sold in the U.S. that otherwise would have been made offshore.

The firm does present a major caveat: The shortage of skilled labor is one of the U.S.’s biggest challenges.  While in the short term the firm doesn’t believe this skills gap will be significant enough to curtail a U.S. manufacturing resurgence, it could be an issue in the long run if action isn’t taken soon to train and recruit new skilled workers.

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