NLRB Boeing decision has geoeconomic dimensionsDecember 9, 2011
The Boeing Company has been trying to open a new manufacturing facility in South Carolina for some time, but the process had been halted by a machinists union complaint before the National Labor Relations Board. Today, however, the union dropped its complaint and has allowed the plans to go forward. Summary from The Hill:
The labor board argued for much of the past year that Boeing decided to locate a new plant to build its new 787 Dreamliner jets in South Carolina, a right-to-work state, in retaliation for strikes by unionized workers at its existing facilities in Washington state.
So why, you may ask, is this story on a geostrategy blog? Because it could have a profound impact on the geoeconomic component of geostrategy. Our primary competitor for geopolitical dominance in the world is China, which has staked its rise on becoming “the world’s workhouse” based on its low manufacturing costs. However, the right-to-work states of the US, especially in the American South, are increasingly competitive with China as low cost manufacturing locations. A recent report by the Boston Consulting Group predicted that, with the right policy decisions, the US could experience a “manufacturing renaissance” as the low cost manufacturer of choice among developed nations.
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, according to a new analysis by The Boston Consulting Group (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.
Key to that would be removing political resistance to moving manufacturing internally in the US from union heavy to right-to-work states. The NLRB decision was a very positive move in that direction.