U.S. demise short term?

[FUDU]

Interesting read.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8844646/World-power-swings-back-to-America.html#.TqWduMfVhnM.facebook

[peeker643]

Interesting read.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8844646/World-power-swings-back-to-America.html#.TqWduMfVhnM.facebook

Occupy Wall Street paying IMMEDIATE dividends!!!!

I wish I shared the optimism of that article.

[Commodore Perry]

There is a lot more truth to that article then people want to acknowledge.

The reason we've lost so many manufacturing jobs to china is because American wages were very high and Chinese wages were very low. It had nothing to do with Chinese competitiveness. They were using our own factories and our own technologies, just supplying cheap labor.

Well thanks to the laws of supply and demand, Chinese labor is getting more and more expensive and American labor hasn't seen a pay raise in a decade. As the labor costs even out, believe me, you will see a mass rush back to America by manufacturers. None of them want a a long, expensive supply chain that extends to the other side of the world and has to deal with a communist government that steals intellectual property left and right. They're only putting up with it while the rewards outweigh the risks. That won't be true for long.

[Cerebral_DownTime]

American labor hasn't seen a pay raise in a decade

Yeah, great thing to cluck about.

While the cost of living has skyrocketed, Americans wages stay flat.

Awesome.

I wish I shared the optimism of that article.

Yeah me too, but I don't because once the European banks go down (the current Sword of Damocles), ours will be begging for another bailout for their stupid derivative gambling in Greece, Italy, Spain, and Portugal.

BUT THAT'S OK, IGNORE THE LOOMING DISASTER AND FOCUS ON OIL SHALE!@!#$!!!#$!@#!!@$!$!@# USA USA USA USA USA USA USA!!!!!!!!!

[Orenthal]

You're all part of the system.

[Cerebral_DownTime]

Thank you, Tyler Durden.

[Orenthal]

Let's start our own protest against protests.

[Cerebral_DownTime]

I don't think it works that way. But I think I could come up with the some good sign slogans.

[Orenthal]

The media interviews would be priceless.

[Ziner]

American labor hasn't seen a pay raise in a decade

Yeah, great thing to cluck about.

While the cost of living has skyrocketed, Americans wages stay flat.

Awesome.

I wish I shared the optimism of that article.

Yeah me too, but I don't because once the European banks go down (the current Sword of Damocles), ours will be begging for another bailout for their stupid derivative gambling in Greece, Italy, Spain, and Portugal.

BUT THAT'S OK, IGNORE THE LOOMING DISASTER AND FOCUS ON OIL SHALE!@!#$!!!#$!@#!!@$!$!@# USA USA USA USA USA USA USA!!!!!!!!!

Cost of living is not skyrocketing, not sure where you get that data. It is currently 3.8% vs the prior year. The last few years have been 2.5%, 4.1%, 0.1%, 2.7% and 1.5%. The only categories that are even making the CPI to be positive are energy prices (Dems say we cant drill), food (driven by energy prices) and health care (Obamacare does zero to address rising costs)

ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

BLS has alot more info on the CPI and other price measures

[Cerebral_DownTime]

I'm not talking about the last 5 years. It goes back further than that.

[Ziner]

Click on the link, since you have been alive it hasn't been higher than 6.1% and the next highest was 4.6%. It has been pretty smooth. There is no skyrocketing.

[Cerebral_DownTime]

When you add in the fact that wages have been pretty much stagnant. Every year it goes up, and wages don't. It adds up.

[Ziner]

Real wages have been stagnant or growing at a historically slow rate, but real wages already take in to account the Cost of Living you were talking about sky rocketing. Real wages would be growing at a much better rate had Obamacare even begin to address costs or if we brought down energy prices. Those are two of the main drivers in the lack of real wage growth.


Here is a real wage chart

http://3.bp.blogspot.com/_GsztNjnPq5s/T ... 0%2529.BMP

[Cerebral_DownTime]

Ok. I take back "skyrocketing", I'll replace it with "continue to rise".

Energy prices..... I'm not real crazy about this whole oil speculation thing.

[Ziner]

Ok. I take back "skyrocketing", I'll replace it with "continue to rise".

Energy prices..... I'm not real crazy about this whole oil speculation thing.

Certainly needs to be looked at, but there is a reason companies purchase futures on oil. It is extremely important for many companies to be able to run their business. They need to be careful in regulating the speculation because shutting it down would do serious damage many industries.

[Cerebral_DownTime]

I'm not saying shut it down, they can do it as long as it doesn't hurt the consumer and they aren't rigging the market.

[Orenthal]

I'm not saying shut it down, they can do it as long as it doesn't hurt the consumer and they aren't rigging the market.

I think the issue stems from the need to hedge, and the opening of the markets to speculators. I'd probably agree with CDT on this...

[Sea Foam Green]

There is a lot more truth to that article then people want to acknowledge.

The reason we've lost so many manufacturing jobs to china is because American wages were very high and Chinese wages were very low. It had nothing to do with Chinese competitiveness. They were using our own factories and our own technologies, just supplying cheap labor.

Well thanks to the laws of supply and demand, Chinese labor is getting more and more expensive and American labor hasn't seen a pay raise in a decade. As the labor costs even out, believe me, you will see a mass rush back to America by manufacturers. None of them want a a long, expensive supply chain that extends to the other side of the world and has to deal with a communist government that steals intellectual property left and right. They're only putting up with it while the rewards outweigh the risks. That won't be true for long.

I think this is over simplifying the issue quite a bit. The reason US companies are building so many factories/manufacturing jobs in China is because China has a BILLION people who are either not using the companies products or are using inferior versions of a company's products made by someone else. The cheap labor's a plus, but the driving force is the market available. The U.S. is saturated for nearly all goods. Companies have to look elsewhere for growth.

Additionally, a substantial contributing factor to the decrease in manufacturing jobs in the US, is an increase in line efficiency. New technologies flat out allow manufacturer's to make more product with less resources. You can blame this on the high labor costs if you want. But the point is, if the labor costs in China grow to high, Chinese laborers will be replaced by technologies, not Americans.

If companies just wanted cheap labor, they would go to Mexico.

[Commodore Perry]

I think this is over simplifying the issue quite a bit. The reason US companies are building so many factories/manufacturing jobs in China is because China has a BILLION people who are either not using the companies products or are using inferior versions of a company's products made by someone else. The cheap labor's a plus, but the driving force is the market available. The U.S. is saturated for nearly all goods. Companies have to look elsewhere for growth.

Much of what is produced in China is exported. Market share is important, of course, but you don't have to manufacture in a country to gain market share, you can simply export to it. Cost savings on labor as well as fewer environmental and labor regulations is absolutely what led American companies to relocate manufacturing to China.

Additionally, a substantial contributing factor to the decrease in manufacturing jobs in the US, is an increase in line efficiency. New technologies flat out allow manufacturer's to make more product with less resources. You can blame this on the high labor costs if you want. But the point is, if the labor costs in China grow to high, Chinese laborers will be replaced by technologies, not Americans.

This is absolutely correct. Robots, not cheap foriegn labor, will be the main nemisis of the American worker in the coming decades. But there are of course limits to this, and no one would really argue that no jobs have been lost to outsourcing. Workers will always be needed to some degree.

If companies just wanted cheap labor, they would go to Mexico.

Mexico isn't quite as cheap as it once was, in fact Mexico has lot quite a bit of jobs to China itself.

And while we're on the subject of Mexico, Ford recently announced they were shifting work from a plant in Mexico to their Avon Lake assembly plant. The cost savings of foreign labor aren't as great as they once were. You will start to see more work coming back to the US.

[YahooFanChicago]

Don't kid yourself, in the vast majority of the cases these factories in China were put there for export purposes not for local market development.

As big as China's population and GDP is their GDC (gross domestic consumption) is very low. Their total annual consumption of all goods and services in USD terms is about equal to Italy's annual consumption (staggering given the population difference).

Also, many of these factories don't even have licenses to sell within China (they are licensed for export only).

another interesting tidbit.. the factories get large tax credits on all of their export sales. For factories that also have domestic sales licenses they do not get any tax credit on sales within domestic China. They only get the tax credits on export sales.

China's government is light years ahead of ours when it comes to economy/trade, they have done a great job in rigging the system to be in their favor. They have very effectively imported a ton of our jobs, production knowledge and tooling. They really have done too good of a job since they have essentialy destroyed the economies of their biggest customers (US, Europe, Japan).

The Chinese govenrment knows that this has to be addressed and that they have to increase their domestic purchasing power and domestic consumption. That means higher wages and increasing the value of the Chinese Yuan. It has to be done slowly and it is a real balancing act otherwise it could result in massive global inflation.

Very tough situation for everyone involved and I don't see it going nearly as quickly nor as smoothly as that article outlines.

[Sea Foam Green]

Don't kid yourself, in the vast majority of the cases these factories in China were put there for export purposes not for local market development.

As big as China's population and GDP is their GDC (gross domestic consumption) is very low. Their total annual consumption of all goods and services in USD terms is about equal to Italy's annual consumption (staggering given the population difference).

Also, many of these factories don't even have licenses to sell within China (they are licensed for export only).

another interesting tidbit.. the factories get large tax credits on all of their export sales. For factories that also have domestic sales licenses they do not get any tax credit on sales within domestic China. They only get the tax credits on export sales.

China's government is light years ahead of ours when it comes to economy/trade, they have done a great job in rigging the system to be in their favor. They have very effectively imported a ton of our jobs, production knowledge and tooling. They really have done too good of a job since they have essentialy destroyed the economies of their biggest customers (US, Europe, Japan).

The Chinese govenrment knows that this has to be addressed and that they have to increase their domestic purchasing power and domestic consumption. That means higher wages and increasing the value of the Chinese Yuan. It has to be done slowly and it is a real balancing act otherwise it could result in massive global inflation.

Very tough situation for everyone involved and I don't see it going nearly as quickly nor as smoothly as that article outlines.

I agree with everything there, with a few minor quibbles [I can assure you international factories that plan to sell domestic also get tax breaks. As you stated, the Chinese govt's goal is to also important technology and toolings to serve as teaching for their workforce]. But more or less, I think you've added to the point I was trying to make:
1.) Building in China isn't as simple as "They've got cheap labor", it's a matter of import/export costs, tax incentives, labor, raw material costs [70% or less than what we pay in the states] and logistics [Even if only looking at exports, it is easier to export to the Asia and the Middle East from China, than from across the Atlantic/Pacific].
2.) China has a low GDC. China is looking to grow consumption. QED China is an open market for growth. [You know, the easy kind of growth].

I don't see how any of this leads to jobs coming back to America if that 'cheap labor' portion evens out.

[YahooFanChicago]

Seafoam...I think we are in agreement. The point I was making about taxes relate to what is essentially an export sales credit. We recently set-up a factory in Shenzhen and they get a 12% tax credit on all export sales and 0% tax credit on domestic sales. Depending on the product/industry the export tax credits can be higher or lower than that 12% which we get (I think the maximum is 15% or so). These types of export/sales tax credits are never made available for domestic sales within China.

The intention of that tax credit is to effectively eliminate all other taxes the factory pays. This essentially puts the Chinese factories at a big advantage vs all of the other factories in the world. I know in the US companies negotiate sweetheart deals to locate in particular states/cities. Even with that though the never get to this level of tax credit/government subsidy.

You are right though in saying that domestic and export factories may get free real estate and/or other additional types of tax incentives from the provincial government.

For our industry the Chinese domestic market is horrible - way too much pre-existing capacity. You're right though that the factory is beneficial for the operations within Asia and the pacific region.