Here is a whisper of good news for anyone who is worried by the hollowing out of America’s manufacturing economy: The mass migration of industrial production from the United States to China seems to be slowing. Indeed, some jobs are trickling back home.
In a Saturday article, the Wall Street Journal highlighted the opening of a furniture factory in Lincolnton, N.C., a rare event for an industry that been devastated by outsourcing. Furniture made in China and sold in the U.S. once had a 50% price advantage. But soaring Chinese wages and higher shipping costs have scrambled the economic calculus. Bruce Cochrane, whose family made furniture for five generations before abandoning manufacturing in 1996, sees a pivot point in the economics of outsourcing. He figures he can compete in the U.S. by using state-of-the-art saws, routers and other machinery that will nearly double the productivity of his American workers.
The Boston Consulting Group has identified seven industries where some production geared to the U.S. market is likely to shift back to the United States: transportation goods, computers and electronics, fabricated metals, machinery, plastics and rubber, appliances and furniture. The strengthening of the yuan and pressure from retailers for shorter turnaround times and smaller inventories are other reasons cited for abandoning the long supply chain to China.
This comes as good news for the estimated 3.8 million Americans (800,000 in manufacturing and 3 million in service-sector support) who could find jobs as a result. Hopefully, some of those jobs will pop up here in Virginia. But it should give pause to public policy mavens in the Old Dominion who propose to invest hundreds of millions of dollars on highway infrastructure predicated on the assumption that the decades-long boom in container traffic from the Far East will continue unabated. I refer specifically to the construction of a new U.S. 460 between Petersburg and Suffolk in a public-private partnership seeded with state funds.
Transportation Secretary Sean Connaughton anticipates a surge in truck traffic out of Hampton Roads when the completion of the Panama Canal widening in three years allows giant post-Panamax vessels to sail directly from China to the East Coast, bypassing the West Coast ports. As it happens, the opening of the upgraded Panama Canal overlaps the Boston Consulting Group’s time frame for the tipping of competitive manufacturing advantage from China back to the U.S. (See “The Panama Canal, U.S. 460 and the Public Fisc.”)
How will these cross-cutting economic currents affect Hampton Roads? I don’t pretend to know. Connaughton may prove to be prescient in his expectation that container traffic out of Norfolk and Portsmouth will surge. But the fact is, nobody knows for sure.
The question then arises, how much risk is the state willing to assume in the funding of the U.S. 460 project, the cost of which could run as high as $2 billion? It is clear that tolls alone will not cover the cost of building the 55-mile, limited-access highway. The Virginia Department of Transportation has committed to a $500 million subsidy to design and build the project.
If the private consortia bidding on the project believed so much in the market opportunity that they were willing to invest their own capital, then the McDonnell administration should move heaven and earth to help make the project happen. But that’s not the case. Private investors are not willing to assume that risk. That worries me. Further, I see no sign that any third party, whether a newspaper or citizens group, is giving the project the outside scrutiny that it warrants. That worries me, too.
— JAB
