The return of manufacturing to developed countries (sometimes called reshoring) has been on the agenda for a while, particularly in countries such as the US that deindustrialised much faster than for example Germany. Yesterday Krugman wrote a couple of posts (first and second) on this issue inspired by an article on the NY Times. Previously the same newspaper had published another article on this topic, supported by a short video (see below). To read a more extensive treatment of this issue check for example this report published in 2011 by the Council on Competitiveness, or this article by Susan Christopherson.
The basic storyline is that as fuel costs rise and automation increases, wages represent a smaller share of final production costs, which justifies bringing production facilities closer to final consumers. We can probably add to this the impact of rising wages, particularly in China, potentially some agglomeration diseconomies in developing nations or maybe even the fear of further backlash from stories that expose terrible working conditions and exploitation in (usually) poorer countries.
This is somewhat good news for workers in the USA, particularly those with low and medium skills that used to benefit the most from the existence of a strong manufacturing sector. It is also likely to have important multiplier effects, not only through the jobs it creates but also because a larger part of the production network is now located in one country. Also, manufacturing is particularly strong in the sort of incremental innovation that usually sustains long-term competitiveness. The obvious problem is that, as pointed out in the NY Times articles, the jobs created are a fraction of those that would be necessary even a few years ago, to achieve the same level of production. Also importantly, this is likely to lead to slower job growth in developing nations, where jobs are badly needed.
Nonetheless this might signify the reversal of previous global trends, very well documented in the book Global Shift, with slower growth in international trade as a result of the re-concentration of production networks. Time to do some research!
