The average cost to manufacture goods in the U.S. is now only 5% higher than in China and is actually 10% to 20% lower than in major European economies, a new Boston Consulting Group (BCG) study estimates.
Further, BCG projects that by 2018, it will be 2% to 3% cheaper to manufacture in America than in China.
BCG believes part of the reason for the narrowing gap is that wages have been rising in China, while American companies have been boosting productivity faster than many of their international competitors.
But BCG states that perhaps the single largest factor in narrowing the wage gap is hydraulic fracturing, fracking, which has helped dramatically drive down the price of oil and gas that’s being used in energy intensive industries such as steel, aluminum, paper and petrochemicals.
BCG calculates U.S. industrial electricity prices are now 30% to 50% lower than those of other major exporters.
“America’s new energy abundance can not only help restore U.S. competitiveness, but can also create geopolitical advantages for America,” BCG states in “America’s Unconventional Energy Opportunity.” “These benefits can be achieved while substantially mitigating local environmental impact and speeding up the transition to a cleaner-energy future that is both practical and affordable.”
America’s abundant and low-cost unconventional gas and oil resources are a once-in-a-generation opportunity to change the nation’s economic and energy trajectory, according to BCG.
“The U.S. now has a global energy advantage, with wholesale natural gas prices averaging about one-third of those in most other industrial countries, and industrial electricity prices 30–50% lower than in other major export nations,” the consultants state. “That means major benefits for industry, households, governments, and communities, while reducing America’s trade deficit and geopolitical risks.”
America has had a 10- to 15-year head start in commercializing unconventional resources vs. other countries, BCG believes.
Harvard Business School Professor Michael Porter, a co-author of the BCG report, says America has about a 15-year lead on other nations when it comes to fracking. The most telling number to make that point? The U.S. has 101,117 fracked wells, followed by Canada’s 16,990. By contrast China has 258.