China has lost its edge.
There was lots of skepticism about a piece in my March letter called “The Great Comeback No One Will Believe” about the revival of U.S. manufacturing as China loses its cost advantage. But I continue to find evidence that the piece was spot on.
I had a good talk with Scott Huff, a principal at Innovate International, which does product development work and contract manufacturing for several industries. Scott’s story is worth passing on because the arc of his career in the last 10 years tells the story better than any set of statistics.
Scott is a design engineer. He started going to China in the mid-1990s to do work for clients. Huff was living in Chicago at the time. Every year, the travel got heavier as more and more clients manufactured in China. “So in 2004, after spending three months in the country in two-week blocks in the first half of the year, I figured maybe I ought to just move here,” Scott recalled. “My wife is pretty adventurous. So we moved lock, stock and barrel to Shenzhen and started rebuilding the business there.”
There were tons of opportunities, and the business grew. Things went well. Then, last year, it started to change.
“In the middle of last year,” Scott said:
I realized it when I was getting price quotes for some injection-molded plastics. Chicago used to be a center of excellence for this, and it’s since been decimated by overseas competition. But there were a handful of the old hands that survived. They kept up with the technology and got very lean and efficient, using electric presses and things like that that reduce cycle times and labor.
Suddenly, prices from them weren’t that different from what you could get in China when you factored in transportation costs. It looked better and better as we took another big labor increase in China in the third quarter of last year. Of the last four out of five jobs I quoted for injection molding in the U.S. versus molding in China, the U.S. won. Most people don’t believe me when I tell them I’m getting better prices in the U.S. The first instinct people have, the paradigm that they’ve learned to live with, has been to bid work in China.
Your editor sympathizes with this. I’ve had a lot of people shake their head in disbelief and call me crazy when I tell them it is (sometimes) cheaper to manufacture in the U.S. now. But here you have a real-world tale from a man on the ground seeing this new trend unfold in real time.
“Things are getting expensive in China, pure and simple,” Scott told me. “Labor costs have gone up substantially in China. That’s not a mystery to anybody. The amount of labor available at any price for some jobs is just not there. If you want to polish a piece of stainless steel for the kitchen industry or tie rawhide pet treats, you’re going to have a tough time finding people. People have options. They’d rather put together an iPad now.”
Even though labor costs have surged, one could argue they have not kept pace with the cost of living. “Food prices in China are ridiculous,” Scott says. “It’s a hell of a lot cheaper to live in the United States than it is in China if you equalize people’s incomes. As a percentage of someone’s income, the chunk for food is a huge line item there. Land prices have been skyrocketing everywhere. Apartment prices are through the roof. It is cheaper to live in the U.S.”
Remarkable, isn’t it?
So business is just starting to move away from China. Manufacturers are seeking out cheaper markets in Southeast Asia. Scott has a new plant there already, in Cambodia. “Cambodia is small but in a good location,” Scott says. “Right in the middle of everything, really.”
His company is also moving business to the States. When I caught up with Scott, he was in Knoxville, Tenn. He is still a resident of Shenzhen, China. That’s where he officially lives. But his kids are going to school in Tennessee, and he is looking to build a business back in the States. It’s a complete reversal of what happened eight years ago.
“I don’t think anybody has any idea that’s happening,” I said.
“It’s sneaking up on people, but they’re going to realize it. The handfuls of survivors in the molding industry in the U.S. are busy as hell right now. It’s not just the plastics industry. Anybody that was left here with manufacturing intact is getting extremely busy.”
“So it seems there would be an opportunity in U.S. manufacturing,” I said. Scott agreed, with a caveat.
“There is an issue that we’re battling. The U.S. lost an entire generation of toolmakers. They’re just not there. The old Polish toolmakers I used to work with in Chicago have all retired, or if not, they are more gray-headed than I am. And there aren’t the apprentices ready to step in. You can’t find a good toolmaker in Chicago right now. It’s hard to come up with. And the skill set — you can’t just turn it on and off like a faucet.”
This is something people — especially political types — overlook. It’s not just a matter of bringing back the jobs. The skill set has to be there, and that takes time to build.
“Technology changes, too,” Scott added, “so it is extra hard to find someone who’s kept up with it all. You can still cherry-pick and pull out a tool in Asia and bring it to the U.S. You just have to figure out a way to maintain it without a toolmaker.”
“Wow,” I said, “that’s a complete reversal of what went on before where people would take machines from the U.S., disassemble them and ship them to China.”
“I was one of them,” Scott said. “Now I’m designing products from China and carrying them to Chicago for production. Touch base with me in a couple of months and I’ll let you know how it went.”
I said I would. In the meantime, we’ll continue to watch this story. China losing its once-formidable cost edge would have a sweeping impact on manufacturers everywhere. Stay tuned…
Chris Mayerfor The Daily Reckoning
Chris Mayer is managing editor of the Capital and Crisis and Mayer's Special Situations newsletters. Graduating magna cum laude with a degree in finance and an MBA from the University of Maryland, he began his business career as a corporate banker. Mayer left the banking industry after ten years and signed on with Agora Financial. His book, Invest Like a Dealmaker, Secrets of a Former Banking Insider, documents his ability to analyze macro issues and micro investment opportunities to produce an exceptional long-term track record of winning ideas. In April 2012, Chris released his newest book World Right Side Up: Investing Across Six Continents.
I guess they’ll soon be devaluing their currency some more, then…
I am seeing this first-hand here in Detroit. Auto suppliers & OEMs are very busy scrambling to hire experienced engineers mechanics and designers to meet the demand.
does that mean fuel prices could conceivably come down in respect to declining transportation.
Little by little, wages in the US are coming down to the Chinese level.
Trend? What trend? As the article indicated injection-molding prices, INCLUDING TRANSPORTATION, are lower. This is always true for things that have a lot of air in them. The real test is “how many of these products is the USA exporting?” I’ll tell you how many – close to zero. And what kind of parts are we talking about? Things like tires where the USA slapped on a big import duty to keep USA manufacturers “COMPETITIVE”. Anyone who invests money in this “trend” is headed to the poor house fast.
sure, domestic manufacturers get competative the instant they eliminate the worker altogether.
so whats the difference between losing the job to overseas competition or losing the job to automation?
and how does that job elimination provide for consumption in a consumer driven economy?
addle media strikes again.
People read blogs like this to get an edge in their investing or decision making. But when you introduce a new paradigm then they fight it. Interesting concepts and ideas. Thanks for something new to think about.
John: The US is one of the top 3 exporting countries…. so The US is a major exporter. The whole meme of “the US doesn’t make anything” is bunk. And when you subtract Oil from our trade deficit the numbers are substantially more sustainable.
If you have good supply chain management (lots of companies don’t) you could have reduced your labor cost differential from China and other east asian offshoring sites to next to zero. (and the transportation costs will put it on the end).
If you produce in China you get a double tax benefit (you get a double tax deduction on your chinese corporation which is half owned by the government… but I am sure they will do nothing improper by owning half your company).
The major benefit beside cost of labor (which is losing out as a benefit) and tax/regulatory policy (which is still major) is the size of their new labor force.
Until recently china was increasing the size of their laborforce by 69 million people a year. Or more then the total labor force of almost every other OECD nation (except the US… but don’t worry Obamanomics is working to change that).
You now have labor status issues (who wants to work in a cheap toy factory when you could work for Foxconn) and you have issues with the pushing of labor from rural china into developed china (basically the chinese government ran a scam where rural china became hellish and laborers moved legally and illegally to developed china to work). and you have prices rising. All of these things impact the cost of labor. Many Chinese firms are outsourcing the lowest skilled labor jobs to places like Vietnam.
as for “devaluing” their currency. If you take a look at the ludicrously sketchy public debt situation in china their currency may actually be over valued. (at a minimum their debt to gdp is at 96% minimum)
Also: China is in a worse position in the greying of the work force then we are. We will feel the effects first (and we are now) but we will also get out of it sooner. So Companies that are deciding on long term capital investments are moving away from china. And you will start to see changes in investments as some factories come back to the US to get access to our youth (relative to other countries of note ) boom
The price of gas at the pump keeps going down.
gas prices are cheaper then prices ON A BOAT
So those 500,000 jobs at FoxConn will soon be moving to America?
Ok, but then we get stories like this.
why is USA importing Chinese workers to build our bridges and roads?
Brian: Over time yes.
Delmar: Yeah but thats not the norm
Delmar: They built railroads across North America in the 19th Century.
Larry: Weren’t you on Cheers?
Scott: Nope just some one who has been studying the China bubble for some time
the tricks they use to make their economy look good are hillariously amazing (that no one has caught them yet)
The National Government cuts off funds to local governments in rural areas (requiring them to depend on their non existant tax base). Require them to pay for any commissars who show up in their province and their commissar like lifestyle. And then the rural governments get loans from the state owned banks (controled by the central banks) to have public works projects to paper over china. This creates economic pressures which drive young men into the more developed areas (where the money is) and to have them repatriate money back to the rural areas.
In developed areas of china the state owned banks give money to keep the legacy era communist enterprises up and running (which have now somewhere between 66%-50% of the workforce in China outside the government) afloat. The managers and local party bosses for the luckier communist enterprises form joint ventures with foreign companies and use their cut of the profits from the venture to pay off their loans as they work to phase employees into the hybrid corporations. Those that cannot just rack up the debt and the chinese government uses book keeping tricks to keep the debt off budget and hide it
Then the national Chinese government sets up projects to artifically inflate GDP to attract FDi from gullible foreign investors.
these are the three principle ways China has built up their economy
Its all those other things sneaking up on us I worry about. But then, what me worry?
None of this matters because the United States is BANKRUPT and it could have EVERY COMPETITIVE EDGE POSSIBLE and it STILL couldn’t dig itself out of the HOLE OF BANKRUPTCY it’s in. Mathematics is a cruel mistress.
Pingback: RKXeroFlGi RKXeroFlGi
Pingback: craigslist cars for sale
Pingback: Buy Facebook Fans get Facebook Likes
Pingback: Daisy Suites
Pingback: Information About purchaseing e cigs and shisha pen
Pingback: carmichal moore
Pingback: need money fast
Pingback: Shavonda Pero
Pingback: NaturaLyte Heart Attack Lawsuits
Pingback: transvaginal mesh recall
Pingback: how to learn french
Pingback: greitieji kreditai
Pingback: alphaviril side effects
Pingback: seo services orange county
Pingback: Check This
Pingback: loras college dance marathon
Pingback: bmw e46 angel eyes wiring
Pingback: sell your car reading
Pingback: commercial property for sale michigan
Pingback: Dominate Google
Pingback: reputation for a company
Pingback: ace diet
Pingback: fresh healthy vending san antonio
Pingback: bolsas de empleo
Pingback: Delma Szysh
Pingback: beylikdüzü escort
Pingback: Upfront Reputations
Pingback: Art Boys
Pingback: natural treatments for hives
Pingback: unique engagement rings
Pingback: casino free bonus ohne einzahlung
Pingback: Real Estate Law Center PC
Pingback: videos x gratuites
Pingback: us tax shield careers ri
Pingback: drake casino no deposit bonus codes
Pingback: Upfront Repuations
Pingback: Zane Hughson
Pingback: Lacy Hernton
Pingback: Aldo Ossman
Pingback: Cary Okerlund
Pingback: Dominick Wellen
Pingback: Lance Malandruccolo
Pingback: Gia Gushiken
Pingback: Lino Dompe
Pingback: Condos for rent murfreesboro tn
Pingback: Weston Less
Pingback: casino ohne einzahlung
Pingback: casino bonus bagging
Pingback: Ayman Khawaja
Pingback: Arron Doom
Pingback: Alberto Lightcap
Pingback: Coleen Steffee
Pingback: Frederic Habina
Pingback: Suzette Senti
Pingback: Giuseppina Wotton
Pingback: click here
Pingback: Lettie Guidroz
Pingback: Isidro Wigington
Pingback: Harmony Salloum
Pingback: Sunni Lakner
Pingback: Matthew Tuggerson
Pingback: Gerri Rashed
Pingback: istanbul property
Pingback: Matthew Browndorf
Pingback: neobro admin
Pingback: Funeral Planners
Pingback: Scottie Heidt
Pingback: Dione Donigan
Pingback: Abel Proffit
Pingback: Nadene Altenhofen
Pingback: Joel Grimmond
Pingback: credit hypothecaire
Pingback: Li Mcphillips
Pingback: gestion integral de servicios
Pingback: garcinia cambogia HCA
Pingback: Buy Facebook Fans
Pingback: buy facebook like
Pingback: przeczytaj recenzj?
Pingback: gp spectrum copy paper
Pingback: CMC Villa
Pingback: book of ra online
Pingback: Indonesia metbis
Pingback: buying facebook fans
Pingback: can i buy facebook likes
Pingback: buy facebook fans
Pingback: social bookmarking
Pingback: data recovery singapore
Pingback: buy likes facebook
Pingback: facebook photo likes
Pingback: mackay cleaners
Pingback: buy retweets and favorites
Pingback: buy 25 facebook likes
Pingback: watch video
Pingback: buy 200 twitter followers
Pingback: Binary Options Trading
Pingback: buy soundcloud plays
Pingback: casino online kostenlos ohne download
Pingback: penomet review
Pingback: decatur il web site design
Pingback: visitors to my site
Pingback: does skinny fiber work
Pingback: roulette forum
Pingback: doorknob capacitors
Pingback: gta 5 beta
Pingback: work at home
Pingback: casino bonus 2 deposit category codes
Pingback: EIN number
Pingback: toms river nj flooring
Pingback: ส่ง SMS
Pingback: Humanity's Biggest Secrets
Pingback: Potato Express
Pingback: event management kuala lumpur
Pingback: car body repairs in leeds
Pingback: AUTO IMPORTEREN
Pingback: freehold singapore property
Pingback: jakarta florist
Pingback: tour adventures
Pingback: buy green tea
Pingback: spas in san diego
Pingback: Gold bullion
Pingback: london speed dating tonight
Pingback: im target bonus
Pingback: Best Price Forerunner 210
Pingback: Jeremy Watson
Pingback: Defiance Scrip
Pingback: diablo 3 power leveling
Pingback: kasino bayer
Pingback: eq2 power leveling
Pingback: Tube Launch
Pingback: view more
Pingback: cheap tablets
Pingback: rapid fire controller
Pingback: My Homepage
Pingback: Las Vegas Whiplash
Pingback: my website
Pingback: roulette chat
Pingback: mom blog
Pingback: Penny Auction Script
Pingback: buy platinum
Pingback: How to Build a Lead List
Pingback: funny quotes
Pingback: travail a domicile
Pingback: Panama real estate
Pingback: green tea
Pingback: white collar crimes
Pingback: travel destinations
Pingback: come fare soldi in fretta
Pingback: fifa 14 coins pc
Pingback: no deposit casino bonus april 2011
Pingback: archeage gold
Pingback: jump manual review
Pingback: diablo 3 gold asia
Pingback: klicken Sie hier
Pingback: Elder Scrolls Online Gold
Pingback: archeage power leveling
Pingback: runescape 3 power leveling
Pingback: voir plus
Pingback: wow power leveling
Pingback: rap beats
Pingback: wow gold eu
Pingback: seo oklahoma
Pingback: poe power leveling
Pingback: Age of WuShu Liang
Pingback: priority loan uk
Pingback: lotro power leveling
Pingback: Age of WuLin Liang
Pingback: tube traffic secrets review
Pingback: book of ra igrat besplatno
Pingback: garcinia cambogia where to buy
Pingback: runescape 3 gold
Pingback: Curtain Enclosures
Pingback: ãƒ©ã‚°ãƒŠãƒã‚¯ã‚ªãƒ³ãƒ©ã‚¤ãƒ³ è‚²æˆä»£è¡Œ
Pingback: Quantenheilung Oldenburg
Pingback: Sterling Silver Necklaces
Pingback: MHF è‚²æˆä»£è¡Œ
Pingback: ãƒ‰ãƒ©ã‚´ãƒ³ãƒã‚¹ãƒˆ è‚²æˆä»£è¡Œ
Pingback: ãƒ¬ãƒƒãƒ‰ã‚¹ãƒˆãƒ¼ãƒ³ è‚²æˆä»£è¡Œ
Pingback: èˆžç¿”ä¼ è‚²æˆä»£è¡Œ
Pingback: æ™´ç©ºç‰©èªž è‚²æˆä»£è¡Œ
Pingback: Payday Loans Edmonton
Pingback: ï»¿FF14 è‚²æˆä»£è¡Œ
Pingback: çœŸãƒ»ä¸‰åœ‹ç„¡åŒ è‚²æˆä»£è¡Œ
Pingback: ä¿¡é•·ã®é‡Žæœ› è‚²æˆä»£è¡Œ
Pingback: Cheap Website Traffic
Pingback: PSO2 è‚²æˆä»£è¡Œ
Pingback: ArcheAge è‚²æˆä»£è¡Œ
Pingback: ï»¿ATERA è‚²æˆä»£è¡Œ
Pingback: рыба в фольге
Pingback: fifa 14 ultimate team coins pc
Pingback: FF14 è‚²æˆä»£è¡Œ
Pingback: ãƒ¬ã‚¸ã‚§ãƒ³ãƒ‰ ã‚ªãƒ– ã‚½ã‚¦ãƒ«ã‚º è‚²æˆä»£è¡Œ
Pingback: ãƒ‰ãƒ©ã‚¯ã‚¨10 è‚²æˆä»£è¡Œ
Pingback: ãƒ©ã‚¹ãƒ†ã‚£ãƒãƒ¼ãƒ„ è‚²æˆä»£è¡Œ
Pingback: AION è‚²æˆä»£è¡Œ
Pingback: FF11 è‚²æˆä»£è¡Œ
Pingback: FF11 RMT
Pingback: Cheap diablo 3 gold eu
Pingback: æˆ¦å›½ãƒ†ãƒ³ã‚«ãƒˆãƒªã‚¬ãƒ¼ è‚²æˆä»£è¡Œ
Pingback: diablo 3 RMT
Pingback: buy facebook contest votes
Pingback: WebinarIgnition Review
Pingback: FFXIV è‚²æˆä»£è¡Œ
Pingback: Background Music For Videos
Pingback: get free subscribers
Pingback: boundra è‚²æˆä»£è¡Œ
Pingback: cctv systems installers company in london
Pingback: Diablo 3 RMT
Pingback: FIFA 14 RMT
Pingback: ï»¿èˆžç¿”ä¼ è‚²æˆä»£è¡Œ
Pingback: FUT14 coins
Pingback: ãƒ‰ãƒ©ã‚´ãƒ³ãƒã‚¹ãƒˆ RMT
Pingback: vpn فروش سرور
Pingback: como tener gluteos de escandalo
Pingback: ãƒ‰ãƒ©ã‚´ãƒ³ã‚¯ã‚¨ã‚¹ãƒˆX RMT
Pingback: ãƒ¬ãƒƒãƒ‰ã‚¹ãƒˆãƒ¼ãƒ³ RMT
Pingback: Neverwinter Astral Diamonds
Pingback: ãƒ‰ãƒ©ã‚´ãƒ³ã‚¯ã‚¨ã‚¹ãƒˆX ã‚´ãƒ¼ãƒ«ãƒ‰
Pingback: paintless dent repair training
Pingback: Business Directory
Pingback: glow in the dark condoms
Pingback: House cleaning
Pingback: book of ra ca la aparate
Pingback: iphone accesories
Pingback: amc inc utah
Pingback: power drill ice auger attachment
Pingback: paintless dent removal training
Pingback: paintless dent repair online
Pingback: free ordination
Pingback: CPA minneapolis bloomington
Pingback: abominator byth aghanee
Pingback: Tagesdeals - Kosmetik Tagesdeals
Pingback: Subliminal Messages
Pingback: scott sohr lawsuit
Pingback: Marketing facebook
Pingback: Siete maravillas del mundo
Pingback: Quality Exotic bags for Wholesales
Pingback: legal advice
Pingback: Lisa Mc Hugh
Pingback: Jaco Beach Tours
No matter where you live in the US, it seems like some federal employee has his hand on your wallet. That said, not all states are created equal in that regard. And so today, Addison Wiggin details which states offer you the least intrusive options when it comes to dealing with the various levels of government. Read on...
When it comes to investing in small companies with explosive growth potential, there is one number investors tend to be fixated on: share price. But as Jonas Elmerraji explains, there is another number that is far more important when it comes to discovering quality investments on the cheap. Read on...
A lot of people are buying to a lot of bad ideas right now, based on faulty logic or blindly following a political agenda. But if you ask the right questions, you can expose these ideas, as well as the people who support them, and show how silly (and stupid) they really are. Thankfully, one man has been doing just that for decades. Doug French explains...
The world is obsessed with smartphones. Most people can't go ten minutes without checking their phone for status updates on Facebook or Twitter or any number of apps they happen to have. And while Facebook's stock continues to soar, it's only natural to wonder, "What's the best way to play this mobile revolution?" Greg Guenthner explains...
One of the most heated political battles raging across the western world is debt versus austerity. In the U.S. this debate reached it's apex in 2011 when the U.S. credit rating was downgraded by Standard and Poor's. In today's essay, however, Chris Mayer throws the debate out the window, explaining why he thinks a U.S. debt crisis will never happen...