I think everybody knows the answer as to why we don’t make much stuff in the U.S. anymore. It’s because companies can make it cheaper, a lot cheaper, somewhere else. And in a capitalist society/economy, companies have to make a profit or won’t exist for long.
There are several factors that contribute to the higher cost of manufacturing in the United States, such as stricter regulations and higher infrastructure costs. But the biggest factor is higher labor costs.
This chart below is all you need to see:
Note: Canada, United Kingdom, United States of America and India data is for 2023. Germany, France, Italy and China data is for 2022. Japan data is for 2021. Source: ILO, National Bureau of Statistics of China, Apollo Chief Economist
We are competitive with Germany and France, as you can see in the chart above. But it is an easy decision to make when deciding where to build something when comparing labor costs between the U.S. and China or India. That’s even if you factor in the cost of shipping it here as well.
Wages in the U.S. are higher mainly because our cost of living is higher, and the amount of available labor is so much more in both China and India. These two factors would be near impossible to change unless wages are reduced, and we allow more foreign workers to enter the country.
Made in America has value to many people and does get some people to buy the same product at a higher price, but not enough to make sense financially for a company.
Companies could cut prices, but that would reduce profits. They could reduce costs to offset the price cuts by becoming more efficient, especially by utilizing the latest advances in artificial intelligence. They could also trim some salaries of the higher ups, specifically the CEO.
In 2022, it was estimated that the CEO-to-worker compensation ratio was 344.3 in the United States. This indicates that, on average, CEOs received more than 344 times the annual average salary of production and nonsupervisory workers in the key industry of their firm. There’s got to be some wiggle room there.
It’s possible to restore our manufacturing prowess back to its glory days, but it would take some major improvements in the wages of most foreign countries and some sacrifices back here on our end to make it happen.
Please comment or send an email if you have any questions.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassemanagement.com
