Before World War II, red-brick textile mills that processed cotton and wove it into cloth were all over the southern United States, dotting the Carolinas, Georgia and Alabama. But in the past 50 years, automation, free trade agreements and competition from countries like China whittled down the historic industry until it was almost gone.
Now some textile jobs are coming back, but on much different terms.
As The New York Times reported, some Chinese manufacturers are setting up shop in the United States after finding it cheaper to produce their goods in the American South than in China.
Keer Group, a Chinese yarn-maker, is investing $218 million in a factory in South Carolina. Another Chinese manufacturer, JN Fibers, is investing $45 million in the state. An Indian company called ShriVallabh Pittie is investing $70 million in a yarn-spinning plant in nearby Sylvania, Ga.
The changes are happening in other industries and locations, as well: Chinese auto glass maker Fuyao is investing in a $230 million production facility in Ohio, and Chinese acquirers are expanding manufacturing capacity at Cirrus Aviation in Minnesota and Nexteer Automotive in Michigan.
An index created by Boston Consulting shows how much the difference between the cost of manufacturing something in the United States and making the same thing in China has narrowed.
In 2004, a good that could be made for a dollar in the United States could be manufactured in China for 86.5 cents. One decade later, that $1 product in the United States would cost 95.6 cents to make in China — not a whole lot of savings.
The narrowing of the gap has a little to do with what’s happening in America and more to do with what’s happening in China.
Americans are making far more in wages than Chinese manufacturing workers. Adjusted for productivity, Chinese factory workers made $12.47 an hour last year, a little more than half of what American workers made, $22.32 an hour, according to figures from the Boston Consulting Group.
But other attributes of doing business in America make up the difference in cost. For example, state and local governments offer ample tax breaks and subsidies. America’s natural gas boom has also lowered the cost of electricity, attracting energy-intensive manufacturing industries.
Overcoming trade barriers and taking advantage of free trade agreements can also make a big difference: For example, yarn manufacturers might set up shop in the United States to take advantage of agreements with Mexico and Central America, whose factories transform the yarn into fabric and clothes that are shipped back to American consumers.
And U.S. workers are relatively educated and productive, making them suited to advanced manufacturing, like auto parts and consumer electronics. All in all, the United States is now one of the lowest-cost locations for manufacturing in the developed world, BCG has said.
But Thilo Haneman, a research director at Rhodium Group who studies Chinese investment in the United States, says that the return of these manufacturing jobs is not really due to changes happening in America.
“I think what’s mostly being reflected is the change of commercial realities in China,” he says.
As China’s economy has developed, wages have risen, and so have the costs of land, energy and other raw materials.
Data from Boston Consulting Group shows how the competitiveness of manufacturing in China and Russia has changed over the past 10 years. Even when adjusted for productivity, Chinese manufacturing wages have risen by 187 percent over the decade. Industrial electricity costs have grown 66 percent, while natural gas costs are up 138 percent.
In the same time frame, U.S. wages have risen only 27 percent, while natural gas costs have fallen 25 percent, according to Boston Consulting.
For products where Chinese companies need access to qualified labor or proximity to American consumers, and don’t require lots of low-cost labor, it can make a lot of sense to manufacture in the United States, Haneman said.
