NCPA - National Center for Policy Analysis

Domestic Manufacturing Costs to Fall Below China

July 7, 2015

A recent report projected that the cost of manufacturing in the U.S. will fall below costs in China within the next three years, in large part due to the rise of fracking. Fortune, citing an analysis by Boston Consulting Group, reported that the average cost to produce goods is currently only 5 percent higher in the United States than in China, and that the cost is expected to be 2 to 3 percent lower by 2018.

  • Rising wages in China and increased industrial productivity in the United States contributed to that trend, but the report cited hydraulic fracturing as the primary reason for the shift in costs.
  • Despite plummeting crude oil prices worldwide, the United States leads the global rankings in petroleum and natural gas production due to fracking.
  • As a result, the prices U.S. industrial customers pay for electricity are now 30 to 50 percent lower than the rates in other top exporting nations.
  • Falling energy prices particularly helped the metals, paper and petrochemicals sectors, which rely heavily on those fuels. A chemical trade group expects the plastics industry alone to create 127,500 jobs over the next decade due to decreasing natural gas prices.

The Fortune report noted that increased domestic production can also curb transportations costs, particularly with trucks fueled by natural gas.

Maintaining the country's fracking advantage over other nations could also help bring manufacturing jobs to the U.S. from overseas. A BCG analyst noted that even the current 5 percent cost gap between the U.S. and China could persuade companies to produce domestically, thereby avoiding potential shipping delays and political complications.

Source: Andy Szal, "Report: Fracking to Help U.S. Manufacturing Costs to Fall below China," Manufacturing.net, July 2, 2015.

 

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