Manufacturing Jobs May Return to the U.S., If China Cooperates

The Boston Consulting Group has issued a long report that says manufacturing jobs that moved to China in recent years will return to the U.S. That will only be true to the extent China allows them to return, as well as how successful American unions are as they try to regain lost income suffered in the recession.

The BCG document says that within five years the rise in China’s labor costs, more efficient U.S. manufacturing methods and a weak dollar will help America regain jobs. The conclusions are based on what the firm says is a rigorous examination of a large number of manufactured goods that are sold worldwide.

China has been called a currency manipulator, probably for good reason. Congress is currently debating a bill that would pressure the Obama administration to sanction China if it will not allow the yuan to be valued more fairly. Some members of Congress and the Treasury Department prefer diplomacy to legislation as a way to handle China’s support of policies that give it a trade advantage. China may not abandon those policies that help it in terms of the cost of its manufactured goods compared to those made in the U.S. The value of the dollar is only as strong a trade weapon as the revaluation of the yuan is.

China’s labor costs may have risen recently. That is to some extent due to inflation in the People’s Republic, particularly the prices of food. China has begun bank regulation efforts that should bring down inflation. Those actions may not work. However, the central government does have control of the country’s banking system. As a result, it is by no means assured that inflation, both of costs and wages, will continue.

Finally, it is not reasonable to assume that U.S. factories will continue to be more efficient. Technology may help the process of lowering expenses, but the union movement in America has begun to regain some of the power it lost over the past decade. New UAW contracts with the Big Three show that labor has retained some of its teeth. The more corporate profits improve at U.S. manufacturers, the more likely it is that workers will press for higher wages and more substantial benefits.

It is not safe to assume that the U.S. will take back millions of jobs from China. The People’s Republic still has too much control over its manufacturing sector, and unions in America have already begun to agitate for a larger cut of manufacturer profits.

Douglas A. McIntyre