“Made In America” Is Back

A lower dollar and high oil prices aren’t all bad news.  According to the US Department of Commerce, exports grew by 21% for the year ending in June 2008, trimming the trade deficit by a small but nonetheless significant 4%.  But there’s another not-so-often-reported benefit of the current economic situation:  products manufactured and sold domestically are also on the rise.

America, Land Of The Low-Cost Producer?

The cost of shipping manufactured goods from Asia has more than tripled over the past 8 years, with no end in sight.  Because of this, profit margins on importing low weight-to-value goods (a staple of developing economies) has plummeted.  Combine this with the falling dollar, which makes foreign goods more expensive to Americans, and you have the situation where paying the relatively high American wages is often actually the least expensive alternative.  It’s far cheaper to ship something across state lines than an ocean or two, even after you factor in higher labor costs and especially after you take the exchange rate into consideration.

The shift is so marked that many foreign multinational corporations, like BMW, Siemens, and Toyota, are increasingly shifting manufacturing plants state-side to save on labor costs.  That’s right, the out-sourcing trend is increasingly going both ways.  Of course this is nothing new, but I think we’ll see the pace of out-sourcing to the US accelerate as the dollar’s value continues to decline relative to other currencies.  Eventually, this will help eliminate the trade deficit and force the dollar into a new, likely lower equilibrium with the rest of the world.  But it presents the best shot we’ve got of maintaining our standard of living in the face of the dollar’s demise.  Let’s hope it’s enough.