Can the U.S. Bring Jobs Back from China?

By Pete Engardio
Business Week
June 19, 2008

Pricey oil is dulling the mainland’s edge in manufacturing. But American industry may not be ready to seize the opportunity

Christina Lampe-Onnerud has a long-lasting, fast-charging battery for notebook computers that she believes will revolutionize the industry. Her company, Boston-Power, would like to make the batteries in the U.S., which she says is feasible despite high American wages.

But Lampe-Onnerud has had trouble finding anyone in the U.S. even to make a prototype, let alone manufacture the battery in bulk. China, by contrast, is home to more than 200 battery manufacturers. On visits to the mainland, Lampe-Onnerud toured dozens of factories with ample staff and laboratories, and none wanted the millions of dollars up front that one contract manufacturer in the U.S. had demanded. She recalls a negotiating session last year that started at 9 a.m. and ended with a midnight dinner. Despite parting with 30 unresolved questions, “at 9:00 the next morning, the entire management team was there with pressed white shirts and a PowerPoint presentation addressing every issue,” she says. “That’s how badly they wanted the business.” In six months, Boston-Power was ramping up production in a 400-worker factory in Shenzhen.

This would seem to be a good time for an American manufacturing renaissance. The economics of global trade are starting to tilt back in favor of the U.S. to a degree unseen in a generation. Since 2002 the dollar has plunged by 30% against major world currencies and is falling against the yuan. Wages in China are rising 10% to 15% a year. And spiking oil prices are driving up shipping rates. The cost of sending a 40-foot container from Shanghai to San Diego has soared by 150%, to $5,500, since 2000. If oil hits $200 a barrel, that could reach $10,000, projects Toronto financial-services firm CIBC World Markets.

But as the experience of Boston-Power and countless companies like it shows, the map of global commerce can’t be redrawn overnight. American factories and supplier networks in many industries have withered in the era of globalization, so it will take lots of time and capital before the U.S. can become a big player again. In electronics, for instance, there has been a mass migration of component makers to China in the past decade. Ditto for suppliers to Midwest heavy-equipment makers and North Carolina’s furniture industry.

The bulk of goods made in China-clothing, toys, small appliances, and the likeÑprobably won’t be coming back, because they require abundant cheap labor. If anything, their manufacture will go to other low-wage nations in Asia or Latin America. And in industries from machinery to motorbikes, China’s productivity gains nearly offset rising wages and fuel prices.

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