US Predicted to Resurge as Industrial Power

Thanks to a cheap dollar and rising wages in China, America may be on the verge of a manufacturing renaissance.

The United States may be on the verge of a manufacturing renaissance. Thanks in part to its devalued currency and rising labor costs in China, by the middle of the next decade, America could once again serve as the primary factory floor for goods sold in North America. Because China also aims to enhance internal demand, American firms could see their exports surge.

Would such a development herald a reversal in globalization? No, argues Wikistrat‘s latest CoreGap Weekly Bulletin. “The larger truth is that China’s continued rise naturally balances global trade.”

China is growing old fast and expected to have more than four hundred million retirees by the middle of this century — more than America’s total projected population by that time. As a result of fewer people entering the labor force, wages will rise faster than those in America for quite some time.

While Chinese labor costs will remain far lower, this differential increase already influences decisions of American firms regarding long-term investments. Thus, as supply chains shorten in the direction of North America, they continue to lengthen in Asia’s direction — increasingly terminating there.

Contrary to popular belief, American manufacturing is far from doomed. Manufacturing as a share of the American economy may have declined by up to a third in the last twenty years; real American manufacturing output has increased by more than 80 percent. The reason is that factory work in the United States is increasingly mechanized and increasingly specialized.

According to the Bureau of Economic Analysis, the market value of manufactured goods, over and above the costs that went into their production, reached a record high in 2007, breaking the record set in 2006, which broke the record set in 2005, which broke the record set in 2004. The recession has affected all industries but the trend is clear — American manufacturing is thriving.

American workers don’t make clothes and toys anymore. They have moved up the scale, producing chemicals, pharmaceuticals, sophisticated airplane and automobile components, and more. All the while, American factories have remained the most productive in the world. As the Chinese and other emerging economies mature, their demand for the sort of labor-intensive and quality products that American factories put out should increase. That’s how globalization works for everyone.