U.S. Manufacturing Slashing Cost Gap
By Michelle Krebs April 16, 2009A new study brings a glimmer of positive news for the embattled U.S. manufacturing sector,
saying U.S. producers are making headway in reducing structural costs.
The Manufacturing Institute and the Manufacturers Alliance/MAPI says U.S. manufacturers have reduced five primary structural-cost measures compared with foreign manufacturers that make a comparable product, according to a commentary in the Pittsburgh Post-Gazette.
The study, aided by the accounting firm of Deloitte and reported by Deloitte employee Dmitri D. Shiry to the Post-Gazette, says the structural-cost "gap" between U.S. manufacturers and foreign producers making a similar product was cut to 17.6 percent in 2007 versus 31.7 percent in 2006. The 2006 disadvantage of 31.7 percent was a markedly worse figure than 2004's structural-cost gap of 22.4 percent.
The structural-cost gap means an American producer spent 17.6 percent more in 2007 for taxes, energy, employee benefits, legal action and pollution control than a foreign competitor producing a similar product.
The study says one reason for the drastic reduction in the structural-cost gap is that foreign competitors are dealing with increases in employee benefits such as health care, particularly in Britain and Canada. European manufacturers, the study found, are seeing increases in tort claims and the Chinese are grappling with higher costs for reducing pollution.
The foreign countries whose manufacturers were examined in the study include Canada, Mexico, China, the United Kingdom, Germany, Taiwan, France and South Korea.
The study said corporate taxes have the most impact on U.S. producers' cost competitiveness, with Japan being the only nation that straps its manufacturers with higher taxes. U.S. corporate taxes have been static since 1986, the study said -- but foreign countries have been "aggressively" reducing their corporate-tax burden during that timespan.
And despite the potential advantage of vast reserves of natural gas in the U.S., the nation's producers now pay a similar amount for natural gas.
More detail on the report, "The Tide is Turning: An Update on Structural Cost Pressures Facing U.S. Manufacturers," is at: www.deloitte.com.
Photo by GM
Workers assemble a Chevrolet Malibu at General Motors Fairfax, Kansas, plant.
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