While the U.S. is still the global leader in value-added manufacturing, manufacturing as a whole has shrunk to just 12.5% of our global GDP. However, the economics of global trade are starting to tilt back in favor of the U.S. to a degree not seen for decades, and this will have a positive impact on our domestic manufacturing. .

Throughout history, since ancient times, developed nations have outsourced the production of goods to neighboring, less developed countries. It’s not dramatically different today. The key difference today is the world has become a much smaller place and therefore a global market, and many less developed nations are now industrializing.

As the 21st century began, China became a threat to manufacturers across the United States as it became an industrialized nation. For many years now, conventional wisdom has held that moving manufacturing operations from the U.S. to China is beneficial for creating significant savings in cost of goods sold. However, in Western nations our conventional wisdom is often heavily influenced by our media, which often misconstrues the facts to add a level of sensationalism to increase viewership.

Let’s shed some light on a few facts that many do not know. For instance, did you know that U.S. companies still produce 20% of the global value of manufactured goods? While China is closing the gap, representing 18% of the global value of goods manufactured, America still produces more. Many of the products that we see or use every day are not made in the U.S., but a lot of high dollar value items are still manufactured here like: aircraft, defense systems, heavy equipment, and precision scientific equipment. The U.S. is also still the largest consumer market for products like pharmaceuticals, cleaning supplies, processed and packaged foods, so therefore we also still manufacture the majority of these products.

While the U.S. is still the global leader in value-added manufacturing, manufacturing as a whole has shrunk to just 12.5% of our global GDP. However, the economics of global trade are starting to tilt back in favor of the U.S. to a degree not seen for decades, and this will have a positive impact on our domestic manufacturing. Since 2002, the dollar has plummeted by 30% against major world currencies and is now even falling against the yaun. Wages in China are rising 10% to 15% per year, and spiking oil prices are driving up shipping rates. The cost of sending a 40-foot container from Shanghai to San Diego has increased by 300% to over $7000 since 2000, and it is predicted that if oil hits $200 a barrel the cost will increase to $10,000 per container. It is unrealistic to expect the U.S. to recapture all industries that have already gone to China, but these global economic factors have a lot of companies reevaluating their supply chains.

Recent industry trends show more and more companies deciding to manufacture stateside, and some companies are moving operations back to the U.S. from China. It is not just global economic factors causing this latest trend. Other compelling reasons given for a return to domestic manufacturing include: quality issues, damaged parts, customer change orders, rising costs of labor and fuel, difficulty protecting intellectual property and preventing counterfeiting, and the overall increased cost of capital that results from a stretched supply chain that strains cash flow. There are many manufacturing environments where product turnaround is key, and that is one thing that China cannot provide U.S. companies due to the great distance between our countries. China can continue to improve upon its quality, but when there is a need for a widget to go from conception, to tool up, to approval and into production in just a matter of weeks, the Chinese cannot compete.

There is also a growing consumer trend that may be a result of a global recession, a greener mentality, or possibly just further evolution of our global consumer society. Consumers have begun to migrate toward higher quality goods at higher price points. There is a growing preference for quality products that last longer and can be repaired. We were once a more consume and dispose of society with the advent of lower cost production, but the pendulum is now swinging back.

So how can the U.S. regain some of its manufacturing dominance in the global market? The most obvious solution will be to focus on innovation and technical expertise. Countries that develop skilled manufacturing, or any type of technology that is superior, build a reputation for it and their products are exportable. The Japanese have done this with the manufacturing of electronics and the Germans with automobiles.

International competition has proven to be good for the domestic manufacturers left standing. To effectively compete they have drastically improved their operating models using principles of lean manufacturing, automation, quality assurance and control, just-in-time delivery, innovation and technology. Many of the manufacturing companies that remain in the U.S. are poised for growth. The corporations, venture capitalists, and private equity groups that have the foresight to again invest in modern U.S. production facilities will be seizing an opportunity that may help our country regain some of its global market share of manufactured products.