"Made in America" Is Back in Style
My high-school history teacher used to tell stories about how his family would seek only to purchase goods that were made in his community or country. One time he described how hard it was to purchase clothing made in America at similar prices to clothes stitched offshore. I could only imagine the hours his family must have spent shopping exclusively for American products about 20 years ago, when China opened itself, and consequently its labor market, to the world.
Around 1990, China opened its doors to the global marketplace. By 2002, the U.S. Bureau of Labor Statistics estimated that China's hourly manufacturing wage was only 1.68% of America's hourly rate. In 2009, Chinese manufacturing labor costs were only 5.19% America's costs.
|U.S. Hourly Manufacturing Rate||$35.67||$33.53|
|Chinese Hourly Manufacturing Rate||$0.60||$1.74|
American labor is making a comeback
Given this data, it is no wonder why my teacher's family had such a difficult time finding inexpensive goods. American companies were quickly outsourcing work to China, saving boatloads of cash. But now the tide is turning.
With rising global fuel prices and labor prices rapidly increasing in China, American firms have been reassessing opportunities. We're now beginning to see some of the results of their decisions.
Consider tech giants Google and Apple. Theyseem to have answered the nation's plea to bring manufacturing jobs back to America. For example, Apple plans to invest $100 million to build Macs in America, while Google-owned Motorola Mobile is investing in U.S. manufacturing jobs. Regarding Motorola's newest smartphone, Mark Randall, Motorola Mobile's senior vice president of supply chain and operations, said:
We're proud that Moto X is designed, engineered and assembled in the USA, but our decision to assemble here was also rooted in providing the best possible experience for consumers. ... Assembling in the USA enables consumers in the USA to design their customized Moto X smartphones online and receive them in just a few days.
Other than running on Google's newest Android operating system, the Moto X is customizable. As with building a custom vehicle, users can choose from nearly 2,000 combinations of features for the phone before it is assembled in Texas. As an added bonus, it is shipped free of charge within four business days of the order.
To be fair, many of the phone's internal components are still made overseas. Regardless, Google is establishing a precedent, and consumers seem to like the results.
A recent Harris poll concluded that about 75% of consumers are willing to spend more money on American-made products while Gallup released a similar report in May that suggested only 60% of America's population will pay more for U.S. products. Even with different results, we see a common thread: Americans will invest more if they think a product is made in America. Moreover, as the American economy improves, that increased production should boost stock prices for U.S. companies.
This phenomenon is even occurring within the automobile industry, where foreign automakers have dominated the market in recent history. For example, American car company Tesla Motors' stock has soared about 390% since April 2012. In the same time, Ford has jumped nearly 40%, while General Motors is up about 39%. But foreign manufacturer Honda has only increased about 1.9% in that time frame. Increasing consumer confidence, rising housing and auto markets, and improving economics -- notably more comparable international manufacturing wages -- all added to these firms' stock price increases.
All things considered, though, the American automakers' performance is exemplary. Ford now seems to have recovered from the 2008 crisis and has been profitable for 16 consecutive quarters. In fact, it is adding 1,400 manufacturing jobs in Detroit. Ford also plans to hire more than 6,000 employees to support its new products, growth, and long-term investments.
It is important to note, though, that like Google and Apple, most auto manufacturers are global firms. And given our globalized economy, it's tough to draw clear comparisons between American carmakers and their foreign counterparts or to attribute the success of U.S. automakers to their U.S. operations.
That said, Tesla is making big waves. Tesla is stealing market share from foreign luxury auto-manufacturers like Mercedes and BMW. While it does not consider itself a luxury car manufacturer, Tesla is now the third-best-selling luxury car in California, America's largest auto market. And although I question the firm's ability to stabilize growth and anticipate a market correction, given its rapid market-share gains (in part because it has received government subsidies and because California residents receive subsidies if they purchase a Tesla made vehicle), Tesla is nonetheless further evidence that American-made goods are finding ample domestic interest.
In fact, American labor costs are comparable to, or lower than, some countries, especially after fuel and transportation costs are considered. As a result, foreign automakers are investing more capital in the U.S. Honda, for instance, operates nine manufacturing plants and 14 research and development facilities in America. Now, it is investing another $215 million in Ohio. Overall, it has $14 billion of capital tied up in the U.S.
Due to changing global conditions, U.S. labor costs are becoming more appealing, especially to companies headquartered in America. And many Americans seem to be interested in purchasing goods made domestically. Maybe my history teacher will be able to find American-made goods at comparable prices. I'll be sure to ask the next time we correspond.
The article "Made in America" Is Back in Style originally appeared on Fool.com.Brendan Marasco has no position in any stocks mentioned. The Motley Fool recommends Ford, Google, and Tesla Motors. The Motley Fool owns shares of Ford, Google, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.