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US Manufacturers' Cost Disadvantage Grows

Posted By Jeff Moad, October 14, 2011 at 12:27 PM, in Category: Global Value Networks

US manufacturers must cope with structural costs that are 20% greater, on average, than those faced by manufacturers in the United States' nine largest trading partners. And that structural cost disadvantage--driven mainly by higher corporate taxes and higher employee benefit costs--is growing, according to a recently-updated report from the Manufacturers Alliance for Productivity and Innovation (MAPI). The last similar MAPI report, completed in 2008, found US manufacturers then faced structural costs that were, on average, 17.6% higher than those faced by manufacturers in competing countries.

"We find in the middle of 2011 is that structural costs are slowly eating away at the ability of US manufacturers to compete effectively," the report concludes. "While manufacturers have many challenges in the current global environment, domestically-imposed costs are undermining our ability to compete by adding at least 20% to the cost of doing business in the U.S."

The report looked at things like corporate taxes, employee benefits, torts, pollution abatement, and energy, comparing related costs faced by manufacturers in different countries.

Manufacturers in China enjoy 35.8% lower structural costs than those in the US, according to the report. Manufacturers in Mexico enjoy 35.3% lower structural costs. Only manufacturers in France face higher structural costs (4% higher, according to the study.)

The study blames higher US corporate tax rates for 52% of the structural cost gap, noting that many countries have lowered corporate taxes in recent years, while US federal and state governments have not. Manufacturers in all compared countries increased their tax-related cost advantage over US manufacturers between 2003 and 2011. In 2011, Taiwan enjoyed 23% lower corporate taxes, while those in China enjoyed 15% lower taxes.

Employee benefits--specifically healthcare costs--were another significant contributor to the structural cost disadvantage of US manufacturers. Employee benefits accounted for 34% of the structural cost disadvantage of US manufacturers. On average, employee benefits cost US manufacturers 5.7% more thann their offshore competitors in 2011, the report found. That rose from 3.8% in 2008. Manufacturers in China enjoyed 5.6% lower employee benefit costs in 2011 compared to US manufacturers, while manufacturers in Mexico enjoyed 12.9% lower employee benefits, the study found.

US manufacturers do enjoy structural cost advantages related to energy costs. And tort-related structural costs to US manufacturers have fallen since the 2008 study.

Still, the report says, the other structural cost disadvantages still more than offset significant productivity gains that US manufacturers have achieved since 2008.

Do these numbers seem right to you? Can the competitiveness and employment potential of US manufacturing be realized without corrections to these significant cost gaps?  

Written by Jeff Moad

Jeff Moad is Research Director and Executive Editor with the Manufacturing Leadership Community. He also directs the Manufacturing Leadership Awards Program. Follow our LinkedIn Groups: Manufacturing Leadership Council and Manufacturing Leadership Summit


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