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With China Forecast To Reach Wage Parity With The US In Five Years, Is A New Manufacturing Golden Age Coming To The US?

Tyler Durden's picture




 

A rather controversial perspective on "reverse labor mobility" has recently seen a revival following the release of BCG's analysis: "Made in the USA, Again: Manufacturing Is Expected to Return to America as China’s Rising Labor Costs Erase Most Savings from Offshoring" which claims that "within the next five years,
the United States is expected to experience a manufacturing renaissance
as the wage gap with China shrinks and certain U.S. states become some
of the cheapest locations for manufacturing in the developed world." While this topic, as we will shortly see courtesy of SocGen is far from taken for granted, could be the deus ex machina that could provide the historic jobs boost to Obama's second presidential campaign (should he get that far), it could also explain the eagerness of the Fed to continue exporting US inflation to China. If the latter is indeed the case, it would mean that the Fed will do everything to continue flooding the world with excess liquidity if for no other reason than to see Chinese inflation reach an out of control state, and wages explode, in an outcome that would ultimately undo the great manufacturing job outsourcing phase that marked the 1990s and 2000s. If successful, it would indeed lead to a second US renaissance in manufacturing jobs. However, will China allow its economy to lose the competitive wage advantage it has held for decades over the US, an outcome which would culminate in riots, as unemployment in the billion + nation goes parabolic. Of course, the conspiratorially minded can imagine a scenario in which the inflationary transference plan concocted by the Chairman has one goal and one goal only: to cause labor cost parity between the US and China in the shortest amount of time. The only two question in this case are: how long until China realizes what is going on, and how will it react?

From BCG:

With Chinese wages rising at about 17 percent per year and the value of the yuan continuing to increase, the gap between U.S. and Chinese wages is narrowing rapidly. Meanwhile, flexible work rules and a host of government incentives are making many states—including Mississippi, South Carolina, and Alabama—increasingly competitive as low-cost bases for supplying the U.S. market.

“All over China, wages are climbing at 15 to 20 percent a year because of the supply-and-demand imbalance for skilled labor,” said Harold L. Sirkin, a BCG senior partner. “We expect net labor costs for manufacturing in China and the U.S. to converge by around 2015. As a result of the changing economics, you’re going to see a lot more products ‘Made in the USA’ in the next five years.”

After adjustments are made to account for American workers’ relatively higher productivity, wage rates in Chinese cities such as Shanghai and Tianjin are expected to be about only 30 percent cheaper than rates in low-cost U.S. states. And since wage rates account for 20 to 30 percent of a product’s total cost, manufacturing in China will be only 10 to 15 percent cheaper than in the U.S.—even before inventory and shipping costs are considered. After those costs are factored in, the total cost advantage will drop to single digits or be erased entirely, Sirkin said.

So which industries would be the first to see a boost as jobs start to trickle back to the US:

Products that require less labor and are churned out in modest volumes, such as household appliances and construction equipment, are most likely to shift to U.S. production. Goods that are labor-intensive and produced in high volumes, such as textiles, apparel, and TVs, will likely continue to be made overseas.

“Executives who are planning a new factory in China to make exports for sale in the U.S. should take a hard look at the total costs. They’re increasingly likely to get a good wage deal and substantial incentives in the U.S., so the cost advantage of China might not be large enough to bother—and that’s before taking into account the added expense, time, and complexity of logistics,” said Sirkin, whose most recent book, GLOBALITY: Competing with Everyone from Everywhere for Everything, deals with globalization and emerging markets.

Indeed, a number of companies, especially U.S.-based ones, are already rethinking their production locations and supply chains for goods destined to be sold in the U.S. For some, the economics have already reached a tipping point.

Just who are these brave souls who are foresaking Chinese zero wage over US minimum wage?

Caterpillar Inc., for example, announced last year the expansion of its U.S. operations with the construction of a new 600,000-square-foot hydraulic excavator manufacturing facility in Victoria, Texas. Once fully operational, the plant is expected to employ more than 500 people and will triple the company's U.S.-based excavator capacity. “Victoria’s proximity to our supply base, access to ports and other transportation, as well as the positive business climate in Texas made this the ideal site for this project,” said Gary Stampanato, a Caterpillar vice president.

NCR Corp. announced in late 2009 that it was bringing back production of its ATMs to Columbus, Georgia, in order to decrease the time to market, increase internal collaboration, and lower operating costs. And toy manufacturer Wham-O Inc. last year returned 50 percent of its Frisbee production and its Hula Hoop production from China and Mexico to the U.S.

Needless to say, US unions are ecstatic, which is why Obama would obviously be firmly behind such a concoction:

“Workers and unions are more willing to accept concessions to bring jobs back to the U.S.,” noted Michael Zinser, a BCG partner who leads the firm’s manufacturing work in the Americas. “Support from state and local governments can tip the balance.”

Zinser noted that executives should not make the mistake of comparing the average labor costs for production workers in China and the U.S. when making investment decisions. The costs of Chinese workers are still much cheaper, on average, than comparable U.S. workers, and some managers may assume that China is a better location. But averages can be deceiving.

“If you’re just comparing average wages in China against those in the United States, you’re looking at the problem in the wrong way,” Zinser cautioned. “Average wages don’t reflect the real decisions that companies have to make. Averages are historical and based on the country as a whole, not on where you would go today.”

That said, since this is a consulting report, it is probably wrong from beginning to end. As a logical check we decided to cross refernce with a SocGen report titled "China’s wage rises – the beginning of the beginning" which however reaches a diametrically different conclusion.

To wit:

The discussion on China’s wage growth and its underpinning urbanisation trend has heated up again as the results of China’s sixth population census are released. Urbanisation looks advancing quicker than previously thought. Stories on wage growth and labour shortages have been hitting the newswire more often than ever before. However, we think China is still some time away from reaching the type of urbanisation  rates that characterised Lewis turning points in Japan and South Korea during their most rapid periods of industrialisation and wage growth. We are probably just one decade into this multi-decade dynamic of real wages starting to rise in urban areas.

Digging into the report:

China reached its first Lewis turning point back in 2003. The income gap between rural migrant workers and agricultural labourers has provided a powerful incentive for the latter to try to find better-paid non-farm jobs. The massive labour flows out of rural areas  eventually led to labour shortages in agricultural sectors starting in 2003 and 2004. Since then, rural wages have been growing significantly faster than urban wages. Between 2004 and 2010, the average wage growth was 3.5ppt higher in rural areas than in urban area. As rural areas supply low-skilled labourers, fast-rising rural wages largely determines the wage growth in those industries that relies on  streamline  workers. This is why we have heard so many stories about labour shortages in export-oriented coastal cities, especially in years when food inflation makes rural jobs more appealing.

The ratio of labour demand to supply hit a record high of 1.07 in the first quarter, up from 1.01 in Q4-2010. This quarterly survey of job centres in 100 cities is clear evidence that China’s labour market is very tight and tightening further. In response to the tightening labour market and the healthy gains in rural wages, provinces are forced to raise minimum wages by a significantly faster amount to attract surplus rural workers back into city jobs. Thirteen provinces and cities raised minimum wages by an average of 21% in Q1. Wages growth of this magnitude will continue to feed into higher manufactured goods prices.

China is still some years away from the Lewis turning point in urban areas. One of the most important results of China’s census, released in late April, is that the pace of urbanisation has been significantly quicker than previously thought. As of the end of 2010, 49.7% of the population lived in urban areas. That is 3pp, or 44 million people, higher than the NBS last estimate for 2009. But this is still some distance away from reaching the type of urbanisation rates that characterised Lewis turning points in Japan and South Korea during their most rapid periods of industrialisation and wage growth.

Another significant differentiating factor, in the Chinese case, is that the pace of urbanisation is suppressed by the population registration system. The latest census showed that four in every ten of urban residents did not hold a local registration, known as a hukou, up from three in ten of urban residents in the 2000 census. Hence, the actual urbanisation rate could be lower than 40%, if we exclude those who work in cities but do not settle there.

Another sign that China still has a big surplus of labour is the stagnant income growth for college graduates. Around 6 million students complete their tertiary or higher education every year in China. It seems they are not exactly riding the tide of rising wages as rural migrant workers. The Chinese Academy of Social Sciences, one of the leading think-tanks in China, showed in its report on China’s Population and Labour that salaries of those much better educated graduates are not much higher than the wages of rural migrant. The mismatch between supply and demand of white-collar jobs reflects the underdevelopment of China’s service sector. In 2010, services contributed to 43% of China’s total GDP, which was much lower than the levels Korea and Japan reached during similar phase of development.

All this means that the process of urbanisation and wage dynamics in China still has a long way to go. According to a research published by the US Bureau of Labor Statistics in 2009, Chinese manufacturing workers' hourly wage was only USD0.81 in 2006 - 2.7% of comparable costs in the US, 3.4% of those in Japan, and 2.2% of those in Europe. After five years of growth, inflation, and currency appreciation, we estimate that the wages of Chinese workers are still just around 5% of the levels in G3. If assuming an annual wage growth of 15% for another decade and total 20% appreciation of the yuan, China’s wage would be 25% of G3’s current levels.  Indeed, it is still an ocean apart.

To reduce farm labour to 10% of the labour force (the point at which, judging by historical experience elsewhere, China may achieve worker-farmer wage equilibrium), the economy needs to create about 150 million new non-farm jobs. Even if the economy continues to grow at 8% per year, China might need 20-30 years to reallocate agricultural labourers and reach “full employment.” But this requires generating eleven  million new jobs every year, including five million for farmers leaving the countryside and six million for college graduates. And these new jobs need to be the right types. Indeed, we are probably just one decade into this multidecade dynamic of real wages starting to rise in urban areas.

So there you have it: a consultant report, and a solid research report coming to two almost diametrically opposite conclusions: it won't be the first time. After all BCG was paid to reach a specific conclusion, whereas SocGen is merely trying to generate a market on either side of the issue. That said, even if BCG is 180 degrees off, the underlying proposition is certainly relevant: that the more the Fed exports inflation, paradoxically the faster the US manufacturing job base would see a long overdue renaissance. Which certainly means that the Fed will never stop with its monetary easing stimulus until such time as labor costs in the two countries, on whatever subjective metric is dominant, finally hit parity. The only question, as noted above, is what will China do in the interim as it realizes the Fed has put it in check - will China focus on developing its middle class, with an outcome being the mirror image of the current Nash equilibrium, in which the Chinese middle class would buy from the US, or will China defect before the "export country" to "consumer class" transition is complete and everything falls apart.

Alas, when dealing with two massively centrally planned regimes, we are confident whatever can go wrong, will go wrong...

h/t Jerry

 

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Mon, 05/09/2011 - 22:43 | 1257851 Ahmeexnal
Ahmeexnal's picture

It's not the Chinese standard of living that's going up.

It's the US wages that will plummet.

Mon, 05/09/2011 - 23:02 | 1257898 old naughty
old naughty's picture

Or, its the Chinese social welfare that gets the lion's share of the wage growth...centralised pools, centralised-controlled enterprises. End of small businesses in China. Death to capitalism, Chinese style.

Tue, 05/10/2011 - 10:13 | 1258984 Hexus
Hexus's picture

China: State has a role in economy, growing at 9%.

US: "Free market" "capitalism", fucked.

Yeah the chinese are stoopid.

Tue, 05/10/2011 - 02:58 | 1258262 Sudden Debt
Sudden Debt's picture

isn't that the same?

Tue, 05/10/2011 - 03:46 | 1258290 Sudden Debt
Sudden Debt's picture

This is total BULLSHIT!!

 

Average wage in China = 7000$

Average wage in the US = 47.000$

 

TO GET THERE IN 5 YEARS THEY WOULD NEED A +60% INCREASE IN SALARIES A YEAR!!

5% PLUS EVERY MONTH!!

BULLSHIT!!

 

THE 5th YEAR ALONE, YOUR ECONOMY WOULD NEED TO INCREASE 2.5 TIMES AS MUCH IN 1 YEAR TO SIZE AS THEIR ECONOMY IS NOW!

BULLSHIT!!

 

Tue, 05/10/2011 - 04:18 | 1258313 Pondmaster
Pondmaster's picture

I agree with first post- Look for wages in the USA to plummet in next 5 yrs ( the parabolic effect started 2 decades ago)  . Figures lie and liars figure , US Middle Class D.O.A. - tagged and bagged . Who gives a rats ass how much Chinese middle class makes . Folk here would just like to buy gas and food , and have a little extra . This whole mess just sucks . Went to fill up my wifes car last night , and to get 5 gal can filled for lawn mower , and fill propane jug for grill . $100!!!!!!!! FRICKING DOLLARS . PRAY TELL , HOW IN  HELL  IS MIDDLE CLASS JOE SUPPOSED TO KEEP UP THIS URSURY PAYMENT TO CORPORATE / GOVT LOOTERS . Till the monies gone and they own us . Kneel ,serf , kneel . I want the first slave tatoo . 

Tue, 05/10/2011 - 08:32 | 1258627 ATM
ATM's picture

Or you need to revalue the currencies.......

It's simple really. Renmimbi is allowed to trade freely v USD and China's relative wages rise substantially (or the Us wages drop precipitously, whichever way you choose to view it.) Same result.

Add that tot he Chinese wage growth that is going to occur even under the present fixed exchange rate regime and the rise can easily be achieved.

Tue, 05/10/2011 - 11:06 | 1259199 MachoMan
MachoMan's picture

Right, but how long will increased Chinese wages persist if it causes decreased demand of their products?  [hint: why they didn't depeg long ago].

Tue, 05/10/2011 - 08:59 | 1258711 Max Hunter
Max Hunter's picture

BULLSHIT!!

Yeah.. No doubt that's the direction, but in 4 years time??... I'm gonna have to call bullshit on that too..

Tue, 05/10/2011 - 12:02 | 1259398 willien1derland
willien1derland's picture

Good call SD - Total BULLSHIT - because everything in economics occurs in a STRAIGHT LINE REGRESSION - Boston Consulting really put their name on this report - Holy Sh*t! - Hey TD - can you arrange an interview with this 'BCG expert' (<--obviously only an expert @ BCG as anywhere else in reality I believe the more appropriate adjective is NIMROD) , please contact Dave Fondiller at 212 446 3257 or fondiller.david@bcg.com & let PLEASE let Marla tear him to shreads - Attention Austan Goolsbee isn't this Dave Fondiller the guy you cheated from in your economics courses @ Carnegie Mellon?!

Tue, 05/10/2011 - 04:39 | 1258326 Mountainview
Mountainview's picture

Can you see yourself on the bicycle and at the noddle shop?

Tue, 05/10/2011 - 06:55 | 1258434 MarketTruth
MarketTruth's picture

You MUST be kidding (sarc).

Americans hop the family in their big SUV and head off to McDonalds after papa worked a full day at his McJob.

Suuuu-wee, feeding time kids!

-----------------

Ok, seriously, China has more 'honor students' than the USA has students! On average, Chinese people have a far better education for their citizens located within cities than their USA counterparts. Add to that, many China factories have new machinery/technology, China has no nasty money-sucking/resource-sucking unions, and Chinese workers work a full day.

Please don't hate the messenger. Go visit China yourself and prepare to realize that the over 25% high school dropout rate in the USA leaves little to be desired... unless they aspire to get a McJob.

Tue, 05/10/2011 - 07:07 | 1258449 Moe Howard
Moe Howard's picture

What you say may be true. What is also true is that China is using NO polution controls, they are poisoning the air, land and water of China. This story misses the point that what we really were exporting was the pollution, not jobs. The job export was a side issue.

Tell me about the health care system in China, the retirement system in China, the food distribution system in China. This is the land of poisoned milk, poisoned toys, poisoned sheet rock, you name it. When TPTB are done with China, it will collapse like a house of cards.

We heard all the same stories about Japan back in the day, they started exactly the same way as China in manufacturing.

If the story had used a timeline like fifty years, possible. 5? Right.

Although Mao's 5 year plans could destroy China's industry in that time, I don't think they can make it uncompetitive based on wages.

Tue, 05/10/2011 - 07:29 | 1258475 MarketTruth
MarketTruth's picture

The health care system in China is not a PONZI scheme that will take down the USA (or at least be outright theft of earnings/money from their citizens).

Retirement... it is called gold, silver, copper etc holdings. Only a fool would trust ANY central bank as they all suffer from purposeful devaluation of FIAT currency. China promotes to their citizens to buy gold and silver, which is available at many banks throughout the country. What does the USA central bank tout and can Americans buy gold and silver countrywide at said banking institutions? Are Americans by and large educated properly about currency and savings, or do they blindly trust what the Federal Reserve central bankers tell them?

Food distribution system in China is generally fine. Plenty of land, too, and they are building high-tech rail systems to transport goods. The pollution you speak of is indeed a problem for now, yet over time that will diminish. America and other countries had the same problems during their growth. As you said, Japan back in the day started exactly the same way as China in manufacturing.

Am not saying China is perfect, yet the USA is a troublesome PONZI scheme amongst even more PONZI schemes, blighted by unions that waste resources, etc. But the worst killer of America long term, besides the collapse of these PONZI schemes (plural), is the sheer lack of education and mind-bogglingly high dropout rate of those in high school. Worse still is that it takes very little knowledge or critical thinking/processing skills in America to graduate high school.

Tue, 05/10/2011 - 10:01 | 1258949 SoNH80
SoNH80's picture

China has made much progress since 1949-- infrastructure, education, industrial base.  However, if the Chinese leadership were wise, it would be less dependent on the United States.  China and the U.S. are in a bear hug with each other, and it isn't healthy for either country.  Ideally, China would focus its energies on supplying itself with goods, and increasing its own people's standard of living, instead of shipping it all to the West in some vain hope of gaining a monopolistic position in Western markets.  Think of how Chinese could enjoy all of these products sent to the West, especially the U.S., in return for pieces of worthless paper!

Tue, 05/10/2011 - 10:06 | 1258954 SoNH80
SoNH80's picture

One more thing.  The quality of products sent to the U.S. from China these days is pretty bad.  My nearly-new coffee maker leaks, a sweatshirt that someone bought me stinks of cheap dye that wasn't fixed, and the bicycles are known to have their frames break.  Is the good stuff being kept within China, after all?

Tue, 05/10/2011 - 09:13 | 1258770 Kopfjager
Kopfjager's picture

Yet all centrally planned economies suffer the same fate.  

But here's some pics from my last trip there.  Pretty cool place to check out nonetheless.  http://gallery.me.com/tribebreaker#100003&bgcolor=black&view=grid

Notice that there's hardly a single soul in any of my pics though.  Hard to believe when there's 1.2 billion people in that country.  Makes one wonder if all the stimulus plans to boost tourism was dumped into money loosing projects.  All that money on a freeway and I'm the only car on it!

Tue, 05/10/2011 - 07:17 | 1258458 Goldenballs
Goldenballs's picture

No,no Western Country is allowed to compete on anything,this would obviously be a threat to the lifestyle of the 5% whoose business is the failed concept of Globalisation which translates as " the highest profit at any price ".

Mon, 05/09/2011 - 22:46 | 1257855 astartes09
astartes09's picture

Quick!  Everyone run to the Iphone factory for those awesome new jobs!  Its not slavery if you volunteer!

Tue, 05/10/2011 - 00:25 | 1258095 Scribbles
Scribbles's picture

ha.

I can't wait until I have the chance to work 4 jobs so I can pay my bills!

Tue, 05/10/2011 - 02:58 | 1258265 Weisbrot
Weisbrot's picture

why not just generate them and ask for a bailout or stimulus package instead? if you dont get one you could allways tell them if they dont hand over more money you will leave... just like greece...

Tue, 05/10/2011 - 03:44 | 1258295 Sudden Debt
Sudden Debt's picture

Bummer part for you will be that you'll only be able to work 4 times 6 hour shifts so that will account as PART TIME JOBS! So we'll pay you minimum -50%.

 

PS: when you come to work, don't wear any sweaters. Our whips sometimes get stuck in them and that may demotivate are Whipping managers as their whipping quota's may go down if they have to unstrung their whips.

 

 

Mon, 05/09/2011 - 22:47 | 1257859 Drag Racer
Drag Racer's picture

a major shift in policy and laws will have to change for any large shift to happen

Mon, 05/09/2011 - 22:46 | 1257861 jkruffin
jkruffin's picture

I guess we better get that Hi Speed Rail system into the battle plan huh?

Mon, 05/09/2011 - 22:47 | 1257862 silvertrain
silvertrain's picture

These sorry mother fuckers here wont work..Unless its from home and very easy with great pay and benefits and retire at 50 and 5 weeks vacation off the bat bla bla bla..

Tue, 05/10/2011 - 00:27 | 1258098 Scribbles
Scribbles's picture

Not to mention everyone between the ages of 18 and 30 are "filmmakers."

Tue, 05/10/2011 - 02:53 | 1258258 Hacksaw
Hacksaw's picture

That's why nearly a million of the sorry mfers applied at McDs.

Mon, 05/09/2011 - 22:47 | 1257864 bobafett164
bobafett164's picture

Ssshhhh... "these are not the droids you're looking for".

Mon, 05/09/2011 - 22:57 | 1257876 Bob
Bob's picture

This isn't satire?  Who da thunk that the Pigmen are doing it all for the little guy.  Now I've heard it all. 

Double down on outsourcing to bring the jobs back home.  Riiiiight. 

Tue, 05/10/2011 - 00:04 | 1258056 Oh regional Indian
Oh regional Indian's picture

Kind of like the Broken Window Fallacy eh, bob?

I think the part many have trouble imagining is that the US will cease to exist as the world's primary glutton before too long. And Wage parity with China would come with Chinese working conditions.... else, with OSHA like statutes and unions, net wages will stay up in the developed world.

ORI

http://aadivaahan.wordpress.com/2011/05/09/population-control-vectors/

Mon, 05/09/2011 - 22:52 | 1257878 Cthonic
Cthonic's picture

According to the iron law of wages, wage parity won't be a good thing for the Occidental earners.

Mon, 05/09/2011 - 22:55 | 1257883 pitz
pitz's picture

I doubt Americans will be willing to go back to manufacturing jobs as long as financial industry motherfuckers are still 'earning' outsized salaries for doing nothing but ruining the economy. 

Mon, 05/09/2011 - 23:07 | 1257909 sun tzu
sun tzu's picture

Making $100K a year isn't bad for a 2 year college degree where the hardest math is basic algebra and some geometry. You get to work in an air conditioned facility. It beats the hell out of McDonalds and WalMart.

Tue, 05/10/2011 - 08:09 | 1258550 buzzsaw99
buzzsaw99's picture

That goes for me anyway. Why work for clownbux?

Mon, 05/09/2011 - 23:00 | 1257890 Poofter Priest
Poofter Priest's picture

Oh good.

I get to drag out and dust off my pet theory.

Which is.....drum roll please....that the U.S. declared a 'hot' economic war with China in 2000 because China would not allow the yuan to float free. I read a paper written in the early 1980s from someone getting their doctorate in economics that laid out in very clear terms that the GLOBAL economy could NOT withstand a major trade imbalance between China and the U.S.

In 2000 all of the sudden the Fed Chair (Greenspan) was on Capital Hill 4-5 times a week when before Fed Chairs went once a year.

In 2000 is when we started up the presses.

We flooded China with money buying their stuff.

They over ate.

Mon, 05/09/2011 - 23:00 | 1257899 Ahmeexnal
Ahmeexnal's picture

If they over ate, they are going to take a massive dump.  Guess who's getting the pile of shit?

Tue, 05/10/2011 - 10:37 | 1259075 Hexus
Hexus's picture

Sounds like anti-China propaganda to me. In my opinion China has a valid economic program similar to what America was doing in the boom years after the second world war, while the US has become a creature of finance capital trying to leach as much money from the real economy as possible through speculation and multi-national corporations reliant on slave labour. These Parasites don't care about American workers or chinese workers they care about money and keeping the empire alive so they can keep their money and power.

This is where China comes in, they are a threat to the Anglo-American financiers' empire and they must be stopped. Vassal countries of the IMF/World Bank/WTO are looking for alternatives, they see America collapsing on one side and China booming on another, they see America blowing up wedding parties with predator drones on one side and they see see China sending in workers to help build infrastructure on another.

This is the purpose of the "Arab spring" happening as we speak, bring the naughty puppets back under US control. 

Mon, 05/09/2011 - 23:00 | 1257897 Poofter Priest
Poofter Priest's picture

Oh and for those that say that American workers won't do the job because they are too spoiled....I worked in manufacturing for 18 years. I saw committement and pride and good team spirit.

So fuck you.

Mon, 05/09/2011 - 23:15 | 1257941 tmosley
tmosley's picture

Exactly.  It has not one thing to do with how "bad" American workers are.  It is the government, and the government alone, that drove our manufacturing base overseas.

Mon, 05/09/2011 - 23:32 | 1257983 Hansel
Hansel's picture

Agreed, and a banker probably made in 1 year what he made in 18.  Other factors need to be figured into the American workers dilemma, for instance the government intentionally pursuing policies to increase housing costs (and not wages), what kind of work is most rewarded monetarily compared with what is produced by that work, how easily the central bank can debase worker salaries, and how many people don't work but enjoy great benefits on behalf of the government.  Nominal wages are only one part of America's compensation problem.

Tue, 05/10/2011 - 08:46 | 1258671 buzzsaw99
buzzsaw99's picture

...a banker probably made in 1 year what he made in 18.

 

That. Fraud pays better than work.

Mon, 05/09/2011 - 23:59 | 1258055 Oh regional Indian
Oh regional Indian's picture

Really tmos? Who was forcing GM/Detroit to turn out poorly manufactured automobiles long before the government was driving anything everywhere? Or those god awful GE appliances?
America does well in small, entrepreneurial businesses, craftsmanship.

Not in big companies, robot manufacturing.

ORI

Tue, 05/10/2011 - 01:35 | 1258200 NidStyles
NidStyles's picture

UAW. Yes, they have Government paid lackey's on their roll's as well.

Tue, 05/10/2011 - 07:30 | 1258473 Eally Ucked
Eally Ucked's picture

It seems to me that you talking about management and not about workers.

Cheap and faulty designs, substandard parts and materials were accepted by them with full knowledge. First you sell your product and then worry what to do next. Permanent, year after year recalls were their invention. That practice is still in use just look at Microsoft or Apple or anything else.

Tue, 05/10/2011 - 08:01 | 1258532 Oh regional Indian
Oh regional Indian's picture

Both eally. GM cars with coke cans rattling in doors and steering wheels falling off were not uncommon.

Both were responsible. I think at that booming stage of an economy, everyone has a huge entitlement complex.

ORI

Mon, 05/09/2011 - 23:35 | 1257984 Creed
Creed's picture

Oh and for those that say that American workers won't do the job because they are too spoiled....I worked in manufacturing for 18 years. I saw committement and pride and good team spirit.

So fuck you.

a big +1

those kind of comments come from the same negative nelly crowd that foolishly states that America doesn't manufacture anything anymore

a cursory look at Google shows America manufactures quite a bit :)

Mon, 05/09/2011 - 23:48 | 1258022 tmosley
tmosley's picture

We used to manufacture EVERYTHING used in the entire world.  Now we don't--China does.  Not a good trend.

Not sure why you seem to think it is going to reverse itself any time soon.

Tue, 05/10/2011 - 00:02 | 1258058 sun tzu
sun tzu's picture

rising chinese labor costs + high transport prices

Tue, 05/10/2011 - 01:09 | 1258175 forexskin
forexskin's picture

i'm in manufacturing, and i'm seeing it now. we have cost structure analysis that now justifies starting a new product, with manufacturing done here. HERE, dammit.

Tue, 05/10/2011 - 08:08 | 1258564 buzzsaw99
buzzsaw99's picture

Go ahead, slave your whole life away for peanuts. The bankstas laugh.

Tue, 05/10/2011 - 14:23 | 1259855 forexskin
forexskin's picture

i'm making an honest living. you?

Tue, 05/10/2011 - 00:14 | 1258073 Pepe
Pepe's picture

so...were you a well trained obedient slave..is that what you mean?

Tue, 05/10/2011 - 04:39 | 1258325 Pondmaster
Pondmaster's picture

.. yeah , and one asshole can ruin the morale of many - eliminate the asshole , any way you chose

Tue, 05/10/2011 - 11:23 | 1259270 Awakened Sheeple
Awakened Sheeple's picture

Eh, I can see both sides of the argument. Yes, free trade fucked us (American shop workers). I bust my ass and take pride in my work. But for every one of you and me, there five other useless fucks who are there to do the bare minimum and collect a paycheck. Our society DOES have a problem with feeling entitled and that needs to change before we can turn things around.

I say bring on the depression or currency collapse and get it fucking over with already so we can start from scratch.

Mon, 05/09/2011 - 23:09 | 1257920 Azwethinkweiz
Azwethinkweiz's picture

Me thinks the new manufacturing base will be in Africa.

Tue, 05/10/2011 - 03:58 | 1258301 Mad Cow
Mad Cow's picture

Really? Who would be the workers?

Tue, 05/10/2011 - 07:42 | 1258496 cackling capers
cackling capers's picture

lol

Tue, 05/10/2011 - 23:43 | 1261731 ghstinthmchne
ghstinthmchne's picture

I agree. Unless something radical happens like the US cutting corporate taxes, then we're not going to see a rush back to the US.

Mon, 05/09/2011 - 23:10 | 1257925 trillion_dollar...
trillion_dollar_deficit's picture

This would force more and more companies to begin looking at other options. Africa and South America would provide way cheaper labor than the US.

Tue, 05/10/2011 - 00:30 | 1258100 sun tzu
sun tzu's picture

Yeah pour $50 million into Zimbabwe or Venezuela for a factory and have the government there nationalize it.

Tue, 05/10/2011 - 00:46 | 1258130 Ahmeexnal
Ahmeexnal's picture

Haiti.

Mon, 05/09/2011 - 23:13 | 1257927 sangell
sangell's picture

Even if this were to come to pass I don't see it helping Obama. His political fate will be decided in a few months not years. There is also a corollary to this. Just as Japan and then Korea were manufacturers first of basic industrial 'crap' they moved up the techno-industrial food chain fast.

China might be more than happy to ship back to us our furniture factories and take our biotech and aerospace away.

Mon, 05/09/2011 - 23:17 | 1257935 tmosley
tmosley's picture

There won't be any manufacturing "golden age" in the US until major regulatory reform (ie wholesale cutting of regulation) is enacted.  Blaming China for taking our jobs is like China blaming the US for taking their babies (ie rather than their dumbassed "One Child" policy).  Rising wages in China will NEVER effect the US, any more than rising fertility rates in the US will affect China.

The US is in control of its own destiny.  All it has to do is cut regulation first, then taxes, and manufacturing will reemerge just as strong as it ever was.  As our capital base is rebuilt, our wages will rise just like they did during the industrial revolution, without the need for regulation.

Mon, 05/09/2011 - 23:45 | 1258009 Creed
Creed's picture

No.

It requires tariffs to bring American manufacturing home to meet our own domestic needs.

Corporations will need to be shown the light, bottom line is how much they can make & tariffs will swing jobs back our way.

Don't Smoot Hawley at me either, this isn't the 1930's. When other countries slap tariffs on us the plus side of bringing home domestic manufacturing will far outweigh losing exports. And they won't tariff our FOOD so a large part of our exports are untouchable.

Mon, 05/09/2011 - 23:57 | 1258046 tmosley
tmosley's picture

lol, you think you can put a gun to people's heads and force them to produce things?

All a tariff is going to do is cause domestic inflation to EXPLODE, starving everyone before we can rebuild our capital base.  You really think we can get the capital in place to resume manufacturing all the consumer goods we have outsourced in a few months?  Not happening.  Not with the current regulatory structure.

lol, you think this isn't the 1930's.  Here's a hint for you--this is WORSE than the 1930's.

And you're nuts if you think they won't put tariffs on food products.  Smoot-Hawley was na effective blockade then, and it will be the same today.

Tue, 05/10/2011 - 01:35 | 1258201 forexskin
forexskin's picture

agreed that its worse than the 30's in some ways, but then exchange was rebalanced by reserve (gold) transfers.

now instead of smoot-hawley, we have currency manipulation, gross imbalances in the ability to externalize costs (and more immediate consequences), a different kind of technology base, leading nations succumbing to financialization, etc.

how much worse can global economic imbalances in general become before something fundamental cracks? this mess will probably have a bigger reset than the 30's, but the US won't roll over with the wave like that tiny pissant england, which has no more place on the world stage. england - the vampire squid of nations.

Mon, 05/09/2011 - 23:53 | 1258037 lizzy36
lizzy36's picture

The US doesn't control their own destiny, their creditors do. The US lost their "right of control" as soon as China became their largest creditor. The $1.25T MBS's sitting on the Feds balance sheet are there mostly to make China whole.

Further, America's tax burden is the lowest since 1958. Taxes are not the problem. They are actually part of the solution but no politician will actually tell you that. They want to get elected. Extend and pretend.

Tue, 05/10/2011 - 04:18 | 1258308 Mad Cow
Mad Cow's picture

What is the end result when a central bank from one country buys debt from another country using debt money? War?

Tue, 05/10/2011 - 08:06 | 1258551 cackling capers
cackling capers's picture

I do not think the Chinese govt controls the US or their 'destiny'. These creditors can do some pushing, but precious little actual action without taking themselves down too. They do not need to control the US destiny anyway. ATM the Chinese get resources with their dollars. They buy everything they can in as many places as they can, especially in Africa and Australia. Their dollars can do very little to force the US however nor do they care overly much.

I do not know what the American destiny will be, but to say they do not control it is silly. The US still have the biggest economy, resourceful people, great enterprises, (reasonable) stability, great universities, natural resources and a tradition of transparency and pride in their work. Sure you got problems lined up, retarded politicians being one (ok I guess just politicians would suffice) but I feel you have as good a shot at a great future as any other nation and better than most.

 

 

Tue, 05/10/2011 - 04:41 | 1258328 Pondmaster
Pondmaster's picture

Nice neat little world . Dream on , or better.. pass that doob over here. 

Mon, 05/09/2011 - 23:18 | 1257948 skunzie
skunzie's picture

Nice concept, but it presupposes that there are only two players involved.  India, Malaysia, VietNam, and other 3rd world nations with great human potential, extremely low wage structures, low corporate tax rates, and favorable environments for global business factories will be the next places for manufacturing and China will largely be in the same boat as the US and Europe:  hollowed out "service" economies.

Mon, 05/09/2011 - 23:23 | 1257951 HyperLazy
HyperLazy's picture

Been a high quality tool maker for a couple decades. Seen lots of shops and workers evaporate since the 90's. First to go were the hacks and then the slackers. All thats left in the US industry are the hard core machinists. Even that is tenuous...

I don't look forward to the return of Made in the USA if an hours wage will only garner half a loaf of stale government rationed bread.

Edit: [rant] Chinese tooling is pure junk. Over 90% of their mold sets fail on the first shot and need rework. If their military equipment is based on the same quality of their machining - we got nothing to worry about. It will fall apart. [/rant]

 

Tue, 05/10/2011 - 01:14 | 1258179 forexskin
forexskin's picture

+1 agreed.

our toolmakers used "finished" chinese tools as a starting point before we got smart and started doing them right ourselves again.

Tue, 05/10/2011 - 04:48 | 1258335 Pondmaster
Pondmaster's picture

Chinese junk - for certain . Hell , they can't even provide their comrade MENARDS with one single exact right angle ( and tapped properly) black pipe N.G. line elbow . The simplest  and the Chinese can't make it . Attitude . The Chinese work attitude ( ethic)is poor, as it is FORCED . Working with all ones heart is a choice , given by freedoms . China has no freedom . They have gone the way of the US and its Poltiburo

Tue, 05/10/2011 - 09:56 | 1258934 SoNH80
SoNH80's picture

Chinese products are garbage.  They were actually better 10 years ago in some ways, when the Chinese were breaking into the market and trying to impress their U.S.-based distributors.  The Chinese advantage boils down to slave labor, or quasi-slave labor (closed residential barracks, fines for going to the toilet, etc.) conditions.  No Western worker can compete with slave labor, the only aces that U.S. manufacturing has up its sleeve are (1) efficiency, (2) innovation, and (3) proximity to the U.S. market, in that shipping from China is becoming an increasingly expensive proposition.  BUT regardless, it is asinine to expect Western workers (including Latin American workers) to compete with slave labor.

Mon, 05/09/2011 - 23:21 | 1257956 malek
malek's picture

Yeah, sure. And in 20 years the Chinese wages will be triple the US. <head palm>

Mon, 05/09/2011 - 23:27 | 1257960 Ska Himself
Ska Himself's picture

I've been saying this since QE1.

There is NO reason a country of 1+ billion should be manufacturing the goods consumed by a country of 300+ million. It should be the other way around. The only question is whether or not it will work and how much damage is done in the interim (assuming it's succesful).

You don't attempt to bankrupt a country of 300+ million firearms (roughly one firearm for every man, woman, child, and illegal immigrant) and the largest militairy in the world ESPECIALLY since we're going to see 100,000+ vets returning over the next few years. That's just stupid.

Furthermore, whether any of you want to admit it or not - Obama WILL be elected to a second term. It's a foregone conclusion (hedge accordingly). The Republicans have painted themselves into an unwinnable corner by allowing themselves to be hijacked by the craziest of the crazy.

Ron Paul, unfortunately, is a non-viable candidate. I'm all for his libertarian / ant-Fed stance but he completely loses all credibility when he starts pushing socially conservative stances. You can't be pro-heroin and anti-gay and expect to be taken seriously by any winnable margin. It just doesn't work.

Tue, 05/10/2011 - 00:47 | 1258124 sun tzu
sun tzu's picture

You must live in wacko San Fransicko. Even Kalifornia and Taxachussetts voted down gay marriage. I guess those states are full of right-wing extremists and shouldn't be taken seriously. It was only legalized by the judges there. 

According to your princess Pelosi, cutting the $3.8 trillion budget by $300 million will bring about collapse of the government. Now that's what you call logical, mainstream thinking.

 

Tue, 05/10/2011 - 18:15 | 1260794 Ska Himself
Ska Himself's picture

Pelosi ain't my princess.

But thanks for the assumption. 

Tue, 05/10/2011 - 18:18 | 1260797 Ska Himself
Ska Himself's picture

Pelosi ain't my princess.

But thanks for the assumption. 

Tue, 05/10/2011 - 18:19 | 1260802 Ska Himself
Ska Himself's picture

Pelosi ain't my princess.

But thanks for the assumption. 

Tue, 05/10/2011 - 01:47 | 1258216 NidStyles
NidStyles's picture

You're an idiot.

Tue, 05/10/2011 - 18:16 | 1260792 Ska Himself
Ska Himself's picture

Thank you?

Tue, 05/10/2011 - 04:48 | 1258337 Pondmaster
Pondmaster's picture

"..and the brain-dead will lead the brain dead ."

"When the student is ready , the teacher will appear."

Mon, 05/09/2011 - 23:28 | 1257962 Korrath
Korrath's picture

I think you guys are also forgetting the rising cost of oil; won't having a manufacturing base as close to the point of sale as possible significantly lower the chunk that rising transportation costs take out of your margins?

Mon, 05/09/2011 - 23:31 | 1257979 Ska Himself
Ska Himself's picture

Absolutely.

My father-in-law was one of the early adopters of exporting his manufacturing capacity to China.

Wages + lack of regulation + low fuel costs = win.

Higher fuel + higher wages = lack of incentive. Regardless of regulatory environment.

Tue, 05/10/2011 - 01:47 | 1258212 The Real Fake E...
The Real Fake Economy's picture

people are forgetting that China has already started to build a high speed transport line that will cut sea export time in half.  It'll connect Chongqing which is in the middle of China to Germany.  Sure, it won't be operational til 2018, but China thinks in terms of big picture and long term.  Why else was China willing to offer financial support to Greece and Portugal last year?  Out of the goodness of their heart?  No, it's an IOU for later.  There's no such thing as a free lunch and somewhere down the road, China will be back to collect.  By the way, while we're on the topic of China, those who still believe that Chinese real estate is a bubble in the traditional sense is flat out wrong.  These speculative buyers are going to hold onto these properties long term, and for many of them, that's fine.  The real bubble i'd be concerned with is the tech/internet bubble here.  The valuations, IPOs and growth models of some of these companies aren't reasonable whatsoever.  I see a tech crash personally before I see a real estate crash here.  just my two cents.

Tue, 05/10/2011 - 04:55 | 1258341 Pondmaster
Pondmaster's picture

.. so then you are speaking by hindsight ? The tech bubble of 2000' crash before the 2008 real estate crash ( that is STILL crashing ) . Tech has a long way to go yet . Juust be in the right tech . Are you LONG SQQQ?

Tue, 05/10/2011 - 06:13 | 1258394 The Real Fake E...
The Real Fake Economy's picture

i know of 2 Chinese tech companies that had considered to IPO this year and were advised otherwise to instead add more value through private cash infusions first, then take public.  the multiples they expect out of the gate is ridiculous as are most of these Chinese tech IPOs.  now I know tech is a different animal and it's valuations tend to be amongst some of the highest of all industries, but it has to be within reason too i believe.

i got burned with BSC in March 2008 so I don't trade anymore.  

another comment about China, overall the growth here is real, the leadership is real.  westerners are too often fed this faux - democracy crap as a guise to start trouble (see bay of pigs, panama, vietnam, dominican republic, middle east etc) and make money for large American corporations, lawyers and other greedy businessmen.  

Mon, 05/09/2011 - 23:48 | 1258023 jonjon831983
jonjon831983's picture

You know, about a year ago I received a complimentary paper coffee cup that was advertising some crummy show.  Most people chucked them, but I looked at the bottom and saw that it was "Made in USA".  I keep that cup on my desk and look at it everynow and then saying "one day".

Fully believe there will be a slow reversal.  However, labour laws would probably need to change dramatically.  Favourable taxes and incentives...

Mon, 05/09/2011 - 23:49 | 1258024 AldoHux_IV
AldoHux_IV's picture

In a zero-sum centrally planned economic game the real losers are the peasants. None of this will actually help correct the imbalances within the economy nor make the world a more prosperous place-- instead it's the same corrupted institutions that got us into this mess who are more concerned with their own self-preservation than actually making things better for our country and the world long-term.

Tue, 05/10/2011 - 01:17 | 1258181 forexskin
forexskin's picture

yup, china slave labor will eat, drink and breathe their own shit until they can't.

when china's ability to externalize costs is gone, then we all move on.

Mon, 05/09/2011 - 23:53 | 1258038 White.Star.Line
White.Star.Line's picture

When China takes over I will bow to their brilliance, which Japan tried to mute but failed. This civilization has thousands of years of experience, we are really nothing.
Watch a true shock and awe as they have learned from the west and now will take down ALL of the world with some hyperinflationary fun that they learned from the Rothschilds.
Think the Chinese are ignorant, slant eyed servants?
They DESERVE to own us.

Tue, 05/10/2011 - 01:25 | 1258183 forexskin
forexskin's picture

bullshit.

they deserve to own you, lazy coward.

Tue, 05/10/2011 - 06:50 | 1258424 topcallingtroll
topcallingtroll's picture

China wont be taking over much.

They can be king of their little dunghill. No one is trying to stop them.

Mon, 05/09/2011 - 23:59 | 1258048 Itsalie
Itsalie's picture

A global superpower who is also the world's sweat shop, yee ha!

Somehow I think the folks at BCG are running out of consultancy contracts given all the austerity worldwide, so some public mental masturbation should al least attract some curious voyeurs. The simplest way to poke a hole thru this study is its blatant ignorance of how China's inflation will feed back to the US within the next 12 months which will tie Ben's printer head in frozen mode, unless of course it goes underground and print to bail out Europe's peripheral, or the US housing market which looks like collapsing into its second leg down within the next 3 months. And even if its not China, why not Bangladesh or Sri Lanka or Vietnam (wow the Dong only goes one direction and that's down faster than the toilet greenback). The chinese garment makers are all in Bangladesh now, as are their golf equipment foundries.

 

Tue, 05/10/2011 - 00:01 | 1258054 Mark Noonan
Mark Noonan's picture

What I'd like to see is a study which takes in to consideration the fact that Chinese goods are low-quality garbage, factor in the cost of shipping the trash to the US and then work out how much manufacturing costs in the United States are increased by absurd taxes and regulations.  I'll bet that once you put all that in to the mix, you'll find that a least a large portion of manufacturing would be more profitable in the United States than anywhere else.

We do need to revive our wealth creation - our making, mining and growing things.  While being a consultant, lawyer, financial advisor or computer whiz is cool, the bottom line is that if a nation doesn't make the lion's share of what it consumes, it is doomed.  This goes back to even ancient times...with Italy under the Roman Empire losing its predominance because they stopped doing for themselves in favor of living off "free" money extracted from the Empire.  Eventually, those who continued to make things called the Roman tune.  And I believe we can do it - just takes a bit of political guts.  Now, if we can just find that...

Tue, 05/10/2011 - 00:15 | 1258065 jonjon831983
jonjon831983's picture

Yea totally, most Chinese goods are low qual crap, but how responsible are the corporations that request bids for manufacturing contracts checking and maintaining quality?  Most of these corporations probably agreed to lower standards to keep their own margins up.  You literally get what you pay for and when you go for paying the least, you get the lowest quality crap that you can get your hands on in any retailer and dollar store.

 

It is a vicious cycle... feel sorry for the ones who get to help give corporations the lowest price contracts.

Tue, 05/10/2011 - 08:37 | 1258641 cackling capers
cackling capers's picture

I'd keep simplistic analogies to the Romans out of this. The western Roman empire collapsed due to a myriad of factors (check e.g. Norman Davies' Europe); Population collapse due to new diseases combined with continued Empire maintenance causing problems with maintaining the army. This in turn lead to debasing, inflation, and increased millitarisation of the state to pay for the army. Indeed to pay for the state resorted to exorbitant taxation amounting to extortion of peasants (who had to be forced to stay on the land so they could be forced to pay for it --> first inklings of serfs there). People fled the land into cities or anywhere and indeed the people were not at all sorry to see the Germanic tribes come in. Rome as a city nearly vanished after this, the Romans kept going in Byzantium for another 1000yr.

This is not all, of course, whole books have been and probably will be, devoted to the subject for 100s of years, but may point is that saying it was caused by 'losing production by living of free money' just detracts from your point about the modern-day US.

 

 

 

Tue, 05/10/2011 - 21:30 | 1261236 Mark Noonan
Mark Noonan's picture

Of course there were 1,001 reasons for Rome's fall - just as there were 1,001 reasons for Rome's rise; but the final point is that when things started to go wrong, the Romans - the Italians, as we would call them today - were forced back upon their own resources and they simply did not have any...they had stopped producing.

Tue, 05/10/2011 - 00:54 | 1258152 Toxicosis
Toxicosis's picture

The return of any appreciable manufacturing base returning to North America, much less America is wishful thinking at best.  Unless we are just manufacturing products for ourselves.  With fuel and input costs skyrocketing who is going to build new or even refurbish existing plants.  This is a pipe dream.  Liquid fuel costs due to supply constraints will only accelerate in the UP direction.  The availability and cost component of these fuel inputs is the rate limiting step in order to continue industrial civilization in it's present capacity.  Wages are irrelevant in the equation if the cost of living due to input costs diminish the ability of companies to profit or the common man to carve out a healthy existence.  Corporations will always choose as close to slave labor as they can, thus as has been mentioned already, Africa is the next choice.  Like it or lump it, American manufacturing is done. 

Tue, 05/10/2011 - 01:19 | 1258185 forexskin
forexskin's picture

again, bullshit.

everybody has the same peak oil problem, if that's what you're getting at.

china and africa will, at the end of the game, starve before el norte americanos.

Tue, 05/10/2011 - 08:03 | 1258546 Toxicosis
Toxicosis's picture

Instead of being an ignorant dumbass, check this out first.  Perhaps America will be cut off of it's fuel imports and become a non player soon enough.  The debt is America's killer, and China will move ITS manufacturing anywhere it damn well chooses.

http://www.theafricareport.com/component/content/article/54/3300034.html

http://allafrica.com/stories/201005130221.html

Tue, 05/10/2011 - 08:51 | 1258685 forexskin
forexskin's picture

argue for your limitations, and they're yours.

if you think that our debt to asia is the problem, then you gotta ask yourself, when push comes to shove, are they going to come here and take it?

ultimately this debt, and the criminals who 'indebted' us are going to come to the rock (starvation) and the hard place (or default by whatever means).

quit equating the corporations and government with the people. it may take time and hardship, but this country isn't just going to roll over.

if you think otherwise, ignorant dumbass, join the fools that want me and my kind out of the way - molon labe.

Tue, 05/10/2011 - 09:03 | 1258724 Toxicosis
Toxicosis's picture

They(Asia) do not have to come in to the U.S. and collect.  They are already beginning to wage an economic and currency war.  Dropping the U.S. dollar and diversifying out is a clear sign of the lack of confidence in it's government and citizens to pay off it's debts.  And yes U.S. debt is the major problem.  It may not be contigent in a few short years to see the U.S. consumer as the major export source.  It isn't even that way now.  I'm not rooting for this outcome, I'm just seeing it as it is already happening.  And yes oil exporting nations may have a change of policy when dealing with the U.S. and ship their products to other nations who are already willing to spend a higher price for the oil they receive.  Don't have naive hope that justice is going to be served on the criminal syndicates.  The good guys would hope to win in the end, but happy endings are fairy tales all too often in a world full of hard realities.

Tue, 05/10/2011 - 10:11 | 1258932 forexskin
forexskin's picture

ending our crap on credit habit would be the best thing to happen to the US in 40 years. let the crash come - i (and many like me) can't wait to start picking up the pieces to build some sense back in.

as far as the criminal syndicates, justice would be a lot to ask, and eventually will be served, but until then, reality will suffice.

go read some history and see what happened to britain when financialization took over. the empire was short lived (1850-1918), and their continuation depended on having the US to wipe their ass and defend what was left of their status quo. that won't be happening this time, cause china won't be taking on that mantle from us as we did from britain.

china will starve before we do, since this big push for industrialization for them comes with a cost - their ability to feed themselves.

capital may be mobile, but we still got the... means to defend ourselves. God help the fool of a nation that comes here trying to collect. again, ultimately the 'right' to collect on US debt depends on the means (force) to collect it.

debt aside, control of access to oil is still the name of the game. like it or not, the US is still better positioned for that game than anyone. read 'a century of war' by engdahl.

Tue, 05/10/2011 - 11:40 | 1259328 Toxicosis
Toxicosis's picture

Once again, full reliance on past performance is not indicative of future success.  And underestimation of other countries  militaries and their capacities is telling of your addiction to patriotism and not reality.  And I do believe that the majority of the oil the U.S. seeks does not belong to them but belongs to a host of countries not necessarily friendly to U.S. interests. 

Will China starve before the U.S.?  Reduce oil imports to a trickle and see who starves first.  The U.S. has to wage war across the world to maintain it's control of other's oil resources. China if need be could use ground forces far easier than the U.S. due to location in the world. Albeit,a bullying and occupying imperialistic agenda is sociopathic.  Hubris, arrogance, and ignorance ends well for no country.  I guess time will tell, who will starve and who will not.

Tue, 05/10/2011 - 14:20 | 1259840 forexskin
forexskin's picture

And underestimation of other countries  militaries and their capacities is telling of your addiction to patriotism and not reality.

no such thing. the US spends more on military than the next 10 combined. like chess, the name of the game is to make the second to last mistake. with respect to oil, every nation that needs oil is playing the game.

I guess time will tell, who will starve and who will not.

yup, and its not patriotic arrogance to suggest that people with a tradition of freedom might prevail over slaves, if we're smart enough to remember how freedom works.

Wed, 05/11/2011 - 04:18 | 1262032 nufio
nufio's picture

the population countries with oil resources will live like kings and the countries which can produce goods hthese countries need will tend to have higher standards of living in the abscence of war.There is no logical reason to believe that these countries will demand goods made in the US for a higher price when they can get the same goods made in China or bangladesh.

 

Tue, 05/10/2011 - 01:56 | 1258224 NidStyles
NidStyles's picture

So wait, let me get this right. You are saying that a nation with the Infrastructure already built up to handle the manufacturering will not be able to compete with a region that has no infrastructure at all because of the price of the fuel. You can't really be that damn stupid, can you?

Tue, 05/10/2011 - 09:52 | 1258915 forexskin
forexskin's picture

So wait, let me get this right. You are saying that a nation with the Infrastructure already built up to handle the manufacturering will not be able to compete with a region that has no infrastructure at all because of the price of the fuel. You can't really be that damn stupid, can you?

sure seems like it!

don't forget to add that the chinese will be taking their brain dead, low quality (not american corporate) management to africa, and then marking up the cost of those products and selling it to us. keep in mind that the chinese operate on razor thin margins, have virtually no customer service expertise, and have as a major value added proposition their ability to pirate (badly).

if this model even comes close, the big US corporations that have moved mfg around the world for years chasing low labor cost margins would have already been there.

toxicosis' premise is that low cost consumerism will still succeed, but with africa sourcing (including infrastructure build out, as you point out), in spite of peak oil.

boy, we got a bridge in brooklyn for you...

Tue, 05/10/2011 - 00:57 | 1258154 laughing_swordfish
laughing_swordfish's picture

I think everybody's a bit right here. Manufacturing CAN come back to the United States (at least as far as making goods for domestic consumption goes) IF regulations and the tax regime is adjusted to make it happen.

A couple of things to remember though, before we celebrate the "renaissance in manufacturing":

First of all, a BIG DRIVER of offshoring and outsourcing production that no one talks about is the exclusion from taxation of US multinational profits earned overseas. If GE closes a US manufacturing plant and offshores to China, the income that that operations earns is now classified as FOREIGN and is exempt from US taxation until "repatriated".

And, as multinationals are busy scouring the globe for new places to stash profits earned overseas, those funds need never be repatriated. With the US corporate tax rate at 35%, the rate would have to go to zero (or even negative) to attract back US-controlled corporate earnings now invested overseas.

Second, as increased energy costs impact shipping over long distances, coupled with increased Chinese wages, the most likely "multinational" strategy would be to find locations in our own hemisphere that offer both below-China wages and easily controlled governments. The CHEEP countries come to mind (Colombia, Honduras, El Salvador, Ecuador and Peru) as well as the other giant low-wage player in our own hemisphere which is rapidly creating a China-like level of infrastructure - Brazil.

Mexico, even though it has NAFTA, will be gradually abandoned as crime, drug violence, kidnappings and general lawlessness make it unattractive to US-domiciled companies. Already, global manufacturers are making plans to move from Monterrey and Cuernavaca to safer locations in Colombia and Brazil.

Once free-trade agreements are pushed through a compliant US Congress, these jobs will come flooding back across the Pacific - they just won't come here.

 

KrvtKpt. laughing swordfish

DKM Trading

Tue, 05/10/2011 - 01:21 | 1258189 forexskin
forexskin's picture

good riddance to that kind of capital.

we just need to quit buying crap on credit, and sooner or later we will do so voluntarily or not.

Tue, 05/10/2011 - 01:40 | 1258205 atomicwasted
atomicwasted's picture

In terms of free trade and free enterprise, we should just cut the corporate income tax to 0% like most of the world.  Repatriation problem solved, and that huge cost savings will get passed on the consumer.

Tue, 05/10/2011 - 04:14 | 1258306 Urban Redneck
Urban Redneck's picture

The US is the only civilized country in the world that thinks it has an unmitigated claim on the worldwide financial activities and assets of its subjects (the hexapus quandary in tax planning).  Geolocation of profits is not the same thing as offshoring of profits.  But the US debt beast's appetite is insatiable, so the insanity continues.  When US companies move beyond Haliburtonization and commence fully redomiciling overseas the end will be near. 

Tue, 05/10/2011 - 06:52 | 1258428 topcallingtroll
topcallingtroll's picture

They are well on their way.

Tue, 05/10/2011 - 01:02 | 1258167 seek
seek's picture

To  small degree this actually is already happening. In the industry I do research for (apologies I can't disclose who or which one) here in the US, one of the key vendors has seen margins climb to new records and product prices have climbed for two years.

I thought this was pretty bizarre, so I dug into it, and it was being driven by the weaker USD making the products more affordable, and enabling the "third world" to afford a richer product mix. Much richer, indeed better than what is being taken domestically.

So in this small case, at lease, the US is the "third world" supplier with the poor internal market taking advantage of a favorable exchange rate to sell to those wealthy people in Brazil and India.

Tue, 05/10/2011 - 01:24 | 1258192 forexskin
forexskin's picture

rebalance of trade by other means...

globalization takes cheap transportation (oil) as read, the death of that illusion will be interesting.

Tue, 05/10/2011 - 01:31 | 1258199 atomicwasted
atomicwasted's picture

It's also a well-known fact in manufacturing that the Chinese re-outsource the really tough, complex stuff to US shops.  It's pretty funny to see that in action.  Company A outsources Product X to China, which in turn gets the really tough components from Mom Shop 1 in Racine and Pop Shop 2 in Kenosha.

Tue, 05/10/2011 - 10:28 | 1258587 jplotinus
jplotinus's picture

Urban myth. The Chinese are as capable of complex manufacturing as anyone else is, easily equal to almost all others, with the possible exception of, say, some German specialty shops, some Japanese companies and, perhaps, a few Connecticut Yankee conclaves, in and around New and Old England. I also hear there are some unique ideas coming out of France, even, not to mention Italian "custom made" tradition. I've probably overlooked talent in Asia and Eastern Europe, at a minimum. They also sail well downunder in OX and NZ.

Tue, 05/10/2011 - 01:32 | 1258197 atomicwasted
atomicwasted's picture

I was predicting this 5 years ago.  Of course, no one here has any way to know that.  You can only arbitrage wages for so long before wages in the lower cost country rise to a substantial fraction of where you're from.  Once wages are up to 60-70% of the originating country, the pain in the ass factor of having to deal with a bunch of jackasses from another country who speak some crazy moon language outweighs the cost savings of not having to employ a bunch of jackasses from your own country.  Detroit real estate is a screaming deal right now.  He who buys in bulk now will be very happy in ten years when the manufacturing renaissance hits.

Tue, 05/10/2011 - 03:31 | 1258279 michigan independant
michigan independant's picture

We are not at bottum on prices are we? Anyway itt will not happen since anyone on your behalf will litigate us to the stone age.

http://www.sierraclub.org/coal/la/pr/pr2010-04-16.aspx

Case in point is work that will not happen as we speak. I am for working smarter and cleaner as the next person but enough is enough. The Company cleared all Federal mandates.

Tue, 05/10/2011 - 06:26 | 1258406 topcallingtroll
topcallingtroll's picture

The manufacturing renaissance will hit in the south and midwest.

Detroit is a post apacolyptic mad max urban nightmare. No one will buy that land due to EPA and clean up costs.

Tue, 05/10/2011 - 01:58 | 1258226 Parth
Parth's picture

Tue, 05/10/2011 - 02:53 | 1258259 michigan independant
michigan independant's picture
  • Things will be more expensive and people will buy less," Mr. Fung warns. That means that the West will have to adopt new consumption trends.
  • Monday, May 9, 2011
    WSJ: China's Rising Wages Propel U.S. Prices
  • Tue, 05/10/2011 - 02:54 | 1258261 BlackholeDivestment
    BlackholeDivestment's picture

    http://bible.cc/2_peter/3-8.htm ZARDOZ says, ''The pace at which our voices are becoming one is speeding up exponentially. Chinese? Ha! What a thousand characters.'' http://www.youtube.com/watch?v=u8Y7gh0uVBY

     

    Tue, 05/10/2011 - 03:31 | 1258283 Mountainview
    Mountainview's picture

    And we will ride bicycles again...

    Tue, 05/10/2011 - 03:47 | 1258294 Urban Redneck
    Urban Redneck's picture

    I think I need to raise my hourly consulting rate, perhaps I should arrange an interview with a BCG expert, such as Dave Fondiller, and learn how to shill shit for bigger bucks.
    I have a client who is looking to build 1-2 plants in the next 5-10 years to supplement its the current facility in low-wage and low-regulatory-overhead GERMANY.  The US doesn't come close to making the list, and shouldn't.
    Wages are a small component in the manufacturing location formulas, to come to the conclusion that wage parity can primarily drive a manufacturing "boom" pushes the acceptable limits of paid stupidity.
    That they couldn't cite examples beyond Caterpillar & NCR which were repatriating existing manufacturing operations to existing manufacturing infrastructure should tell you everything.  Texas City can expand refining capacity and hire more workers, but unless the US starts building new oil refineries there isn't going to be a refining "boom" in the US.
    There are a few examples of new manufacturing coming to the US, but the cost justification tends to revolve around location of source materials and projected higher transportation costs, not labor.  It might enlighten the intellectual hobbits at BCG if they price wages in gallons of diesel per hour and compared the total cost of a factory in location A vs. location B, and then started factoring in required capital investment and regulatory overhead.

    Tue, 05/10/2011 - 05:54 | 1258374 Dollar Bill Hiccup
    Dollar Bill Hiccup's picture

    If fuel is heavily subsidized in China, just as the cost of capital is heavily subsidized, then what happens to your preferred metric of diesel per hour if those subsidies fall away?

    Any transition is going to be, shall we say, bumpy. The long and the short of it is that the Consumer is dead and we have killed him. The funds do not exist to support the life style that we have grown accustomed to. So things must change. Whether you create tariffs to normalize the labor gradient, you export inflation through monetary policy to normalize the labor gradient, or you create recessions to drive down aggregate demand and imports, and thereby work to normalize the labor gradient, the point is that this is happening and will continue to happen.

    The article is a thought, not a plan. The Bernank has a plan. The rest of the government is still only thinking (I know, that's probably an oxymoron). But more plans will be forthcoming.

    Tue, 05/10/2011 - 08:09 | 1258569 Urban Redneck
    Urban Redneck's picture

    The hypothetical assumes the cost of diesel is a constant across any two possibilities, subsidies, which are subject to adjustment after capital has been committed, only impact the margins not the base business case.  The point is that labor is a small piece of the cost of bringing raw materials to a manufacturing facility, creating finished goods out of the raw materials, and transporting the finished goods to market. 

    There are exceptions, such as high-end Swiss watchmakers, but even there the labor cost is not a determining factor in production location; it is the existence of a skilled supply of labor that is the determinant.    

    For the broad spectrum of manufacturing outside of handmade timepieces and the like, product quality is a function of market demand and price, not manufacturing location.  Japan exported crap for decades, and their exports were viewed as crap upon receipt in the US.  When consumers expressed a preference for higher quality goods Japanese manufacturers responding by increasing quality, not outsourcing manufacturing to another country.

    Tue, 05/10/2011 - 08:34 | 1258631 Jim B
    Jim B's picture

    There will be no boom in the US unless the regulatory environment changes... LOL  

    Tue, 05/10/2011 - 04:39 | 1258331 ivana
    ivana's picture

    USA manufacturing new age may come indeed but it will not come in these geopilitical and economical conditions. Something much much bigger MUST happen to start it ... like new economic-political earthquake

    Tue, 05/10/2011 - 06:17 | 1258399 topcallingtroll
    topcallingtroll's picture

    The new manufacturing era is upon us.

    DISTRIBUTED MANUFACTURING AND MASS CUSTOMIZATION.

    computerized machine tools with specs for every imaginable fabrication demand.

    One shop doesnt just produce brakes, it produces every single metal part for any application for any industry.

    The military in afghanistan already has a prototype they are testing.

    Tue, 05/10/2011 - 05:03 | 1258344 ZOZO Smith
    ZOZO Smith's picture

    This is BS. Try a google search for "China wages increase" and you'll see for yourself.

     

     

    Tue, 05/10/2011 - 05:13 | 1258349 falak pema
    falak pema's picture

    new paradigm change...China is the new model of old paradigm...Will USA be the new model of new paradigm?...That is the "to be or not to be" question of this century, to avoid Armageddon and billions dying from lack of food. It' ll be a tough road anyways, as humanity never gets its solutions right in "seamless" mode like Apple with Macs and I-pads!

     

    Tue, 05/10/2011 - 05:48 | 1258367 Dollar Bill Hiccup
    Dollar Bill Hiccup's picture

    It's not the Lewis turning point, it's the Bernank turning point that you have

    to keep your eye on. Lewis is theoretical, Bernank is real.

    Weaponised money creating positive social change around the globe!

    Or, here come the tariffs ...

    Tue, 05/10/2011 - 06:30 | 1258411 Franken_Stein
    Franken_Stein's picture

     

    This is fantastic news for America !

    Unemployment rates will drop to 5% again.

    Finally !

     

    Tue, 05/10/2011 - 07:02 | 1258439 King Dong
    King Dong's picture

    Chinese will simply outsource their manufacturing to Africa. There isn't a silver lining to this sad story

    Tue, 05/10/2011 - 08:08 | 1258552 r101958
    r101958's picture

    bwahahahahahha! Maybe,......maybe manufacturing will come back when there is some semblence of pay parity with China and India. IMO that will take a long time and a lot of pain.

    Tue, 05/10/2011 - 08:09 | 1258554 jplotinus
    jplotinus's picture

    The idea of "re-industrialization" is interesting. As I think about Murkin youth, with their i-pods, gameboys, other gizmos, tattoos and illiteracy, on one hand, I have a hard time visualizing humping in a factory for $9/hr, 8-1/2hrs day(on the way to 9 and then 10) and  5 days a week (on the way to 6), on the other.

    However, stranger things have happened. 

    Tue, 05/10/2011 - 08:16 | 1258590 buzzsaw99
    buzzsaw99's picture

    You won't catch me slaving for bennie-bux. The chinks can have my sweat-shop slave wage "job". Don't do me no favors maggots!

    Tue, 05/10/2011 - 08:18 | 1258592 buzzsaw99
    buzzsaw99's picture

    Please joo-massah, kin I haves mah jobz back?? :snivel:

    Tue, 05/10/2011 - 09:07 | 1258749 DosZap
    DosZap's picture

    Hate to sound pessimistic, but I cannot see this happening.

    One simple reason.

    The Eco Nazi's.

    They will never allow mfg facilities to built, at a price(pollution overkill controls) that WE will ever be competitive again.

    Until they are SHUT down, and kicked out of the Congressional lobby Groups,we will never see a mfg anything.

    Tue, 05/10/2011 - 09:40 | 1258885 Stuck on Zero
    Stuck on Zero's picture

    Lets assume the Yuan revalues upward by a factor of two or three against the dollar.  Does anyone believe that the U.S. would be able to export anything to China?  The Japanese Yen went from 250 to the dollar to 80 to the dollar and the balance of trade never budged an iota.  You cannot trade fairly with mercantilist countries.  The U.S. needs to firewall its borders and withdraw from "globalism" before we're driven to third-world levels.

    Tue, 05/10/2011 - 09:58 | 1258936 Central Bankster
    Central Bankster's picture

    Impossible with the tax structure in the US.  There will be no industrial revolution part duex with all the taxation and regulation.  Who in their right mind would risk their capital, only to have the vast majority of their risk profits stolen by the socialists?  The constant fear of defacto nationalization via political theft will keep capital from concentrating in the US.  The number one thing needed for capital formation is the rule of law and political stability.  We have neither with regards to private property in the US.

    Tue, 05/10/2011 - 10:24 | 1259020 abc123
    abc123's picture

    The areas where the US can still compete with China are areas where the contribution of labor costs are kept low by efficiency.  That means factory automation. 

    If a company automates, it can cut labor cost and stay in business or it can go broke without automation.

    Mfgrs can automate the work of assemblers and inspectors and material handlers.  Many of them sadly go bye-bye. Companies mainly keep a staff of maintenance techs and management. 

    I see it all the time.  Productivity goes up, costs go down, SOME jobs stay here in the US.

    HOWEVER, CHINA CAN DO THE SAME.

    Right now, they might use four people (in a manual plant) to do the work of one american worker (in an automated plant).

    So it's four chinese incomes to equal one american income -- per unit production.

    If they get more efficient and cut that labor from four to three people, they've avoided wage parity. 

    Sounds like a good time to get involved with automation in China.

     

    Tue, 05/10/2011 - 10:31 | 1259048 I did it by Occident
    I did it by Occident's picture

    Automation, Automation, Automation (to sort of steal the real estate mantra).

    The US was never de-industrialized, per se.  We actually make a lot more "stuff" than we did even back in the 70s.  It's just that everything now is "made in the USA by robots." 

    Basically, it is the same thing that happened with "de-agriculturization" from 1800 to 1900.  It's not that farms stopped producing, just that automation made labor obsolete.  Now maybe 2% max of the workforce works in Ag but the amount of food produced has multiplied manifold since 1900. The same dynamic is working in the manufacturing sector for the last couple generations and will most likely continue until there is a skeleton crew running all the robots which make everything. 

    Where will everyone work? Who knows but prior to 1990, there were very few web page programmers and now they are everywhere. So hopefully (IF economic policy doesn't screw things up which is a good possibility) whole new industries will spring up to replace the old ones, a la schumpeterian creative destruction.

    On a side note, the risks of "trying things" for an entrepreneur in product development is decreasing due to better (and cheaper/faster) engineering software and prototyping capabilities which allows for mass customization but also less risk per try for the entrepreneur.

    The effect is better designed products that are developed with increasingly faster product-development cycle times.
    Also, the diversity of products being designed are proliferating. The cost-effectiveness of these products will come from "flexible" manufacturing cabilities that can run low-number production numbers easiliy and with less set-up costs. Soon, the cost/part of a one-off part will be almost the same as a million part-run. Companies will be able to make parts "on-demand" and thus try out ideas quickly, letting the market itself tell them to make more or not. Read about "the long tail" coined by Chris Anderson to get the idea.

    What effect will this have on jobs? Well, I'll tell you, those that are the most creative, the most agile, most networked, most innovative will be the winners, and those that cling to the way things are will be the losers. And the need for strong technical skills is a plus but increasingly, even those are becoming "commoditized" so that even those without technical skill but have creativity, can compete by having good ideas and "innovation networks" to get the idea out there. Incidently, the cost of failure is getting lower and lower (due to the agile manufacturing mentioned above) and the fact that one can "rent" the talent/resources on-demand, and thus there is no need to invest (take the added risk) in capital equipment/skills that you can just contract out to someone who specialized in that area. Of course, that also means you have competition from everyone else too, but that will make everyone better I hope.

     

    http://www.wired.com/magazine/2011/02/ff_madeinamerica/

     

    Tue, 05/10/2011 - 10:58 | 1259146 Laddie
    Laddie's picture

    "Made in the USA" American Apparel based in So Cal, may have products literally made in America but Americans, from published reports, were not the ones doing the "making"

    I've come across garment factories in New York City where no one, not management, not ownership, not workers, are American. Although it is literally "made in America"

    I was watching Brian Williams NBC last evening they had a closing segment on "Education" the reporter MS WELKER, a person of color, mentioned this program, something like COMPUSMARTS, something like that for "GIRLS OF COLOR" the instructor was an African-American woman professor from a college in Arizona, nobody was White.

    NOBODY. The girls intern at Dell and etc and end up with jobs there. That is your future.

    You are being replaced. You will be the equivalent of sharecroppers in the land your ancestors made great.

    The food will be suspect, potable water a memory, and your new OVERLORDS, VERY hostile.

    Enjoy the taxpayer dollars going to the new $600 MILLION LATINO MUSEUM at the Smithsonian, joining the Afro-American wing and etc.

    Do NOT follow this link or you will be banned from the site!