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In Manufacturing, the U.S. Is Surprisingly Competitive

Boston Consulting Group
Forget what you think you know about high-cost and low-cost countries for manufacturing because there’s been a dramatic shakeup over the past decade. According to a report by Boston Consulting Group, the U.S. has shot up the ranks of competitiveness, while Brazil has foundered badly.

The report ranks the world’s 25 biggest exporters of manufactured goods in terms of direct costs of production—factoring in wages, productivity, and electricity and natural gas. Indonesia and India are the cheapest and next-cheapest in terms of those direct costs. But they have other problems such as poor infrastructure, says Justin Rose, a co-author of the report and partner at BCG. Brazil’s costs have gotten as high as those of Western Europe. Mexico, on the other hand, has made big productivity gains.

The 10 biggest exporters account for about 70 percent of global manufactured exports–and are therefore destinations of choice for most companies locating new plants. China is still No. 1, though its lead has narrowed. The U.S. has moved into the No. 2 spot, followed by South Korea, the United Kingdom, Japan, the Netherlands, Germany, Italy, Belgium, and France.

It’s worth noting that the consultants’ ranking doesn’t line up too closely with countries’ trade performance. Despite its No. 2 ranking, the U.S. runs a huge trade deficit in manufactured goods. Germany, ranked No. 7, is a manufacturing powerhouse. Rose says Germany is hurt in the ranking by its high labor cost, but says that the country has managed to minimize that disadvantage by focusing on goods that have relatively low labor content and require high skill to make. Also, he said, the superior ranking of the U.S. could be a preview of things to come. “Part of the point of this work is this [relative competitiveness] is evolving quickly over time.”

Coy is Bloomberg Businessweek's economics editor. His Twitter handle is @petercoy.

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