Medical Musings: Reshoring is just hopeful hype

05/02/2013

The concept of "reshoring" sure gets a lot of buzz in American manufacturing media these days. You've seen the stories. America is more competitive because labor prices are rising in China; Asian quality is inferior; communications problems torpedoed a project; shipping costs are rising, etc. The newest line is that lower natural gas prices will bring manufacturing back to the United States.

A new 125-page report from Morgan Stanley called "U.S. Manufacturing Renaissance: Is It A Masterpiece Or A Fake?" throws cold water on that argument.

It shows that energy costs make a small proportion of the production cost of most products. Direct energy costs represent about 2% of cost of goods sold (COGS) overall and even less in many manufacturing sectors such as autos, electronics and machinery. Materials make up the great bulk of COGS, and sure some of those prices will be more competitive as a result of lower domestic production costs. But the global market will determine who will get the lowest materials' prices, not logic.
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