“Made in China” has been the punch line for too long in jokes about jobs and manufacturing disappearing from the U.S. and popping up on the other side of the world. Now the U.S. is having the last laugh—or at least the latest one—as the econometrics of manufacturing again favor North America. It’s great timing, because the global heavy equipment market is on the edge of a boom.
According to a global management firm, Boston Consulting Group, the U.S. and its immediate neighbor to the south, Mexico, have regained their manufacturing clout. Over the last decade, the two countries have moved to the top of the list for best places for assembly lines and similar manufacturing processes. Nothing magical spurred the ascent. Boring old bottom lines tell the story.
In essence, American labor productivity has risen or remained steady during the period compared to overseas rivals: It is the best among the 25 biggest manufacturing exporting countries. The consulting group says that, for example, when productivity is factored in, labor costs are 20 to 54 percent lower here than in Western Europe and Japan. Similarly, China’s manufacturing wages used to be half that of Mexico’s; now wage costs are 13 percent higher, factoring in productivity.
This advantage takes on fresh significance once the cost of energy is added to the equation. Hello, horizontal drilling and fracking! While natural gas prices are rising elsewhere in the world, they are falling in the USA. China manufacturers pay three times more today than do industries here. The energy cost advantage is expected to persist for decades.
As a consequence of all this, overseas heavy equipment plants are not going to be shuttered en masse and their production lines moved to the U.S. The cost advantage of proximity continues for markets on other continents. But with the global heavy equipment market expected to top $208 billion by 2020, industry leaders headquartered in the U.S. are going to have plenty of work turning out loaders, excavators and other in-demand earth-moving machinery.
If the U.S. construction market finally cranks up, equipment dealers will have to scramble to find a dark cloud of any kind.