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Can U.S. Manufacturers Compete With China?

Sigma Investment Counselors

June 23, 2017

It is beginning to look like the answer is yes.

Historically, conventional wisdom held that China’s low wage rates were the trump card in manufacturing location decisions.  Things are changing.  While low wages were certainly a major factor in China’s economic competitiveness, low taxes were also a material factor.

Today in China, wages are going up, combined taxes and fees now exceed the nominal US corporate rate of 35%, a rate that may be going down, and, equally important, land, transportation and energy costs are all much cheaper in the US.

Chinese windshield maker, Fuyao Glass, recently opened a $600 million factory in Ohio and plans additional facilities in Illinois and Michigan, which, in aggregate are expected to create 4,500 new jobs.  In January, Foxconn, a very large electronics supplier, announced that it is considering a plant in the US.

Perhaps, a careful restructuring of the US corporate tax rate and some moderation in regulations, can turn a trickle into something more.  Business leaders are very good at identifying cost reduction opportunities.

Repatriation is not likely to be quick, or universal.  High value, high technology products are a good bet, but T-shirt manufacturers, while moving away from China, are seeking even lower labor costs.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA®

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