Surprise! Making goods in China isn’t actually that cheap.
These days, China’s labor costs are only 4% cheaper than those in the U.S. when productivity is factored in, according to Oxford Economics.
That’s because wages in China have risen much faster than increases in productivity. Coupled with a strengthening yuan, Chinese labor costs have grown dramatically. Meanwhile, huge productivity improvements in the U.S. have helped keep labor costs down.
The bottom line: Manufacturing in China is no longer a surefire way to save on the cost of labor.
China has long been accused of keeping its currency low to boost exports. The issue is again in the spotlight as U.S. presidential candidates, including Donald Trump, blame China for the decline of America’s manufacturing sector.
But for most of the past decade, the yuan has strengthened against the dollar, making life tougher for the country’s exporters. When the currency started to weaken again recently, Beijing used its massive firepower to try to stop it falling too far.