Return to sender: U.S. to benefit from China wage growth

Rising labor costs in China will prompt American factories to move production back to the U.S., creating up to 3.2 million jobs by 2020, the Boston Consulting Group said. A so-called reshoring of manufacturing activity that was lost to China over the past decade would also trim imports and boost exports, reducing the U.S. non-oil trade deficit by as much as 35 percent to a range of $240 billion to $280 billion from $360 billion, according to the BCG study released today. Wages increasing up to 20 percent a year and a strengthening currency are eroding China's low-cost advantage, the study said. Seven industries, including transportation equipment, electrical gear and furniture, may reach a “tipping point” by 2015 that will spark a “manufacturing renaissance” in the U.S., resulting in a $100 billion boost to production by 2020, it showed. “A surprising amount of work that rushed to China over the past decade could soon start to come back,” Harold Sirkin, a senior partner at BCG who led the research, said in a statement. “The economic impact could be significant.” Manufacturing employment will climb by 600,000 to 800,000 as output returns or as American companies expand investment at home, the study said. Related industries may add as many as 2.4 million additional workers, resulting in a total of 2.3 million to 3.2 million new positions that will trim the unemployment rate by as much as 2 percentage points by the end of the decade. As the world's largest economy becomes more competitive, China may no longer be the default low-cost manufacturing location to supply the U.S. market, the report said. Mexico is also likely to benefit from this trend given its low wages and proximity to the U.S., BCG said. --Bloomberg News--