Posted on 06/27/2015 4:17:30 AM PDT by 2ndDivisionVet
“Made in the U.S.A” is becoming more affordable. The reason? Fracking.
You don’t need to a Nobel Prize in economics to know that the fracking revolution has been good for the U.S. What’s not so well known is just how competitive cheap oil and gas has made American manufacturing. BCG, the Boston consultancy, estimates the average cost to manufacture goods in the U.S. is now only 5% higher than in China and is actually 10% to 20% lower than in major European economies. Even more striking: BCG projects that by 2018 it will be 2% to 3% cheaper to make stuff here than in China.
Part of the reason for the narrowing gap is that wages have been rising in China. And American companies have been boosting their productivity faster than many of their international competitors. But perhaps the single largest factor is that fracking has helped dramatically drive down the price of oil and gas that’s being used in energy intensive industries such as steel, aluminum, paper and petrochemicals. BCG calculates that U.S. industrial electricity prices are now 30% to 50% lower than those of other major exporters.
“A 5% price discrepancy in manufacturing between China and the US doesn’t amount to much,” says BCG’s David Gee, “when you consider that US manufacturers face the risks of delay when shipping from China, the threat of port strikes, and the local investments and partnerships that Beijing often requires of foreign companies doing business there.”
Lower energy prices can also open up new opportunities such as a using natural gas to power fleet vehicles and trucks, which would reduce American dependence on foreign oil and cut greenhouse gases. Natural gas can also be converted into hydrogen to power fuel cells like the ones in Toyota’s Mirai passenger car. (The Japanese car giant will start taking orders for the Mirai in California this summer.)
Over the last few years, cheap energy has encouraged players in various industries to earmark $138 billion for new U.S.-based investments. This spring, for example, the petrochemical giant Sasol started construction on an $8.1 billion ethane cracker at Lake Charles, La. And energy companies like Cheniere are building multi-billion LNG terminals on the Gulf of Mexico to export overseas, where natural gas can be three to four times more expensive than it is in the U.S.
How long will America’s advantage last? Harvard Business School’s Michael Porter, who along with BCG issued a new report in June called “America’s Unconventional Energy Opportunity,” says that America has about a 15-year lead on other nations when it comes to fracking. The most telling number to make that point? The U.S. has 101,117 fracked wells, followed by Canada’s 16,990. By contrast China has 258.
No surprise here. China has been losing a lot of their manufacturing jobs to places like Vietnam and Cambodia. It’s amazing how quickly a slave colony can turn into an expensive place to do business.
This is probably not a holistic view of costs. The EPA and various environmental regulations greatly increase costs, as does the litigation industry with their government helpers who pass legislation to cause lawsuits. Then, there’s the astonishing political environment. I’ve worked at two companies who had protestors outside their doors for months on end.
Amazing that people can afford to be there every day and not have to work for a living, isn’t it?
“Amazing that people can afford to be there every day and not have to work for a living, isn’t it?”
A couple of times at both, widely separated companies, I saw them disembarking from charter busses. They’d leave trash from their box lunches. The media covered the protests, but never delved deeply into who the protesters were.
Much more on resulting at the BCG website, they’ve been writing on this topic for several years.
They can “afford” to protest for days on end because the protestors are either:
1) paid by the organizers (look in the papers for protest jobs when issues arise - all expenses paid) or,
2) they are trust fund babies who never need to work.
These people are usually protesting some issue that afforded them the ability not to have to actually work.
Depends on what you leave out in order to make the claim.
You’re absolutely right about that. U.S. manufacturing costs may be getting lower when measured per unit of labor or hour, but it’s impossible to accurately gauge U.S. manufacturing costs over the long term because manufacturers here basically have an open-ended, unlimited liability for environmental costs that can’t be measured.
I would assume the authors considered all costs. But perhaps not.
I also assume the comparative costs vary widely by industry, with the numbers cited an overall average.
There are often hidden costs associated with offshoring. For instance, companies that offshore their customer service centers to India often lost business over time because customers swear they will never buy a product again that will force them to try to deal with some guy in Mumbai they can’t understand.
Some of the worst business decisions are made by people based on bad accounting systems. For instance, in my work I see huge builders repeatedly making the same mistakes in building homes. As a result, they leak and they are on the hook for big repair and cleanup costs.
The problem is that the warranty department is a separate division, and the guys who actually build the homes don’t factor in the cost of repairs needed because they don’t take the very limited additional time and effort to do it right in the first place.
It depends on the type of goods. I’m sure our robot lathes can turn our machined parts nearly as cheaply as the ones in China. If, on the other hand, you have hire 50 girls to hand-paint Christmas ornaments, then it’s much cheaper in China.
Actually, it is - see BCG. But not all states or industries will share equally in the return of US manufacturing. This is one factor behind Gov. Walker’s push for right-to-work status. Another factor is the rising cost of shipping to/from China, and the logistics issues it poses.
There is currently probably five times the profit on the Asian-made stuff compared to the US-made version, even factoring in the energy it takes to ship the items halfway around the world. Even when entire shipments of product are rejected and the company has to replace them, there remains considerably more profit than when it was produced here.
I have paid attention to the issue for 20+ years and I STILL don't know how they manage to do it, other than that the Chinese are very good at cutting corners in materials (quality and quantity) to the nth degree, they can pollute freely, and their factories are frequently Dickensian in their stinginess and unpleasantness.
Mr. niteowl77
“For instance, companies that offshore their customer service centers to India often lost business over time because customers swear they will never buy a product again that will force them to try to deal with some guy in Mumbai they can’t understand.”
I was involved with the call-center business in India. We offered nice college graduates who were highly intelligent and spoke beautiful English. Potential customers complained our prices were too high, and asked if we could get somebody cheaper. It was still 60% cheaper than comparable-quality people in the US, but they were looking to save 90%. You get what you pay for!
So the customers don’t notice the low quality of the Chinese products? Or they do, but they don’t care if they are cheap enough?
The author omitted the soon to come wage inflation. The Democrats all across America are demanding a minimum wage increase that is necessary to mask the effect of Obama care.
The minimum wage increase is intended to induce general increases in wages and salaries that will induce a general price rise.
The inflation of prices is necessary to decrease the value of the US$ which will reduce the value of the debt.
In short, the Fortune trash magazine writer is basically wrong
A small import tariff would push it over the top. Can’t happen soon enough. But am a sure our secret fair traders have negotiated everything away.
One of the things that the libertarians in NH do (yeah, yeah, I know....libertarians) Is counterprotest. Its an effective tactic. The socialists spend a bunch of money to bus in their idiots. The libertsrians send maybe 5 to 10 to counterprotest. The news media laps it up. They love the conflict. Net cost to the libertarians in getting their message out is very low.
If the minimum wage goes to $15 or $20 an hour:
Robot hamburger factory makes 360 Gourmet Burgers every hour...
http://www.freerepublic.com/focus/f-bloggers/3100817/posts
The Tea Party should do that.
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