The U.S. Is Beating China on the Factory Floor. This Is Why.

The U.S. Is Beating China on the Factory Floor. This Is Why.
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When you think of manufacturing megapowers, one country immediately springs to mind: China. After all, that nation has maintained the lead in the manufacturing horse race since 2010. But that’s about to change — and in as little as four years. Another horse is making a play for first place:

The U.S. will outpace China as the world’s most competitive manufacturing nation by 2020, according to the 2016 Global Manufacturing Competitiveness Index.

What’s behind America’s new place at the front of the pack? It comes down to an ongoing economic boom that some analysts are calling “Manufacturing 4.0” or “Next Manufacturing.” Manufacturers are finding that the total cost of ownership (TCO) favors U.S.-based factory production, explains Harry Moser, founder and president of the Chicago-based Reshoring Initiative, a nonprofit think tank that supports U.S.-based manufacturing. The domestic energy boom in natural gas and fracking has lowered the cost of materials and operations, prompting more factories to return to U.S. soil. Then there’s proximity to a growing field of local suppliers that provide raw materials. And keeping production in the country means there are no duties and tariffs, reduced inventory carrying costs and R&D innovations on the factory floor aren’t at risk of intellectual property theft. Also, the U.S. doesn’t have to lower its prices or wages to be competitive with China; it needs only “a lower total cost to produce that product,” Moser explains.

It’s also thanks to recent investments by companies like GE, Wal-Mart, General Motors, Ford and Caterpillar to bring factories back home to create Made in America products, Moser says. He cites GE’s revitalization of Appliance Park in Louisville, Kentucky, as “the best documented case of reshoring’s impact,” bringing back 1,300 jobs. Michigan and several Southern states currently attract the largest share of manufacturing and direct foreign investment, but the industrial boom is now reaching metro regions in the Pacific Northwest, California, Salt Lake City, the Midwest and the Great Lakes.

But it’s about big data and high-tech innovations, too. “The entire ecosystem of the factory floor is undergoing change,” explains Bob McCutcheon, an industrial products analyst for PricewaterhouseCoopers (PwC). “The hard hat is being replaced by a person in a white coat.” Manufacturing is increasingly using predictive capabilities to generate value and create more efficient, lower-cost logistics to handle materials throughout the supply chain. U.S. labor costs are still higher than those of other nations, but the ability to create smart products and smart factories will make this less relevant over time, McCutcheon says.

There are potential obstacles in the United States’ race to No. 1. For one, the continued strength of the dollar could dampen international sales of U.S. industrial exports. Smart factories need skilled labor, and the number of science, technology, engineering and mathematics (STEM) graduates and “upskilled” workers who have received technical training may not be able to keep pace with demand. What’s not going to be a problem? Robots taking jobs. Thirty-seven percent of U.S. industrialists say their need for skilled labor will actually increase as physical production becomes automated, according to a recent survey by PwC.

So, is the U.S. about to pass China on the homestretch? Should we be thinking of giving, say, the Rust Belt a more optimistic nickname? “We have before us an extraordinary opportunity,” says McCutcheon. “All the right factors are in place.”

An earlier version of this story misstated that the domestic energy boom has lowered the cost of transportation, instead of materials and operations, and that the number of jobs revived by GE’s revitalization of Appliance Park totaled 103,000. The correct figure is 1,300 jobs.

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