David Cameron took a risk appearing on the David Letterman show in New York on Wednesday night. The often-razor sharped chat show host is not in the business of deferring to politicians even when they lead America's closest ally.
The 15 or so discomforting minutes that Cameron had at the Ed Sullivan Theater on Broadway were at least a break from the more chronic pain of how to pull the UK economy off its back.
A trip across the Atlantic should also have provided the Prime Minister some respite from a European crisis whose endgame looks likely to stretch into the latter part of the decade.
America’s recovery – albeit it an historically weak one – has rightly offered hope in Britain that an economy which also endured the double-whammy of a banking collapse and a housing crash can at least muster some growth.
It is a good thing, then, that Cameron did not see a new study published by Boston Global Consulting (BGC) shortly before he touched down at JFK.
It is the latest in the now ballooning genre examining the future of American manufacturing. But its central conclusion is a sobering one for the UK and other developed economies. In just a few years, it argues, the US will become a global manufacturing hub.
In other words, the world’s multi-nationals will establish factories and assembly plants in the US for the sole purpose of exporting goods to Europe, the UK and Asia. Why?
Firstly, US workers, once adjusted for their productivity, are becoming cheaper and more competitive. Secondly, the tapping of America’s vast reserves of shale gas will drive down energy costs for manufacturers.
By 2015, BGC claims, average manufacturing costs in the US will be 8pc lower than in the UK, 15pc than in Germany and France, 21pc than in Japan and 29pc below Italy. Indeed, the study says a few companies are already doing it.
It points to Toyota assembling cars in Kentucky that are destined to be driven on South Korean roads, Siemens building gas turbines in North Carolina that will ultimately be used in Saudi Arabia, and Rolls-Royce making engine discs in Virginia that will be for sale across the world.
“The US is becoming one of the lowest-cost producers of the developed world, and companies in Europe and Japan are taking note,” according to Hal Sirkin, who wrote the study.
A few examples certainly do not make a trend, and not everyone believes the future for the US that the study outlines is likely.
David Simchi-Levi, an expert on manufacturing and professor at the Massachusetts Institute of Technology (MIT), argues instead that the trend towards regional manufacturing will ultimately dominate over the next two to three decades.
In a retreat from the elaborate global supply chains that multi-nationals built over the last 20 years, many companies will instead want to produce their products as close as possible to the customers who are going to buy them.
The attraction of global supply chains are not what they were given the oil price has more than tripled over the last decade and become more volatile too.
“Companies realise that there is significant risk in their supply chains,” says Simchi-Levi. “We’re at a tipping point.”
Whether BGC’s prediction of the US as a global factory unfolds or not, emerging trends in manufacturing pose taxing questions for the US and the UK as they try to rebalance their economies after the financial crisis.
Greater competition on wages, particularly versus China, is cited in almost every study predicting a renaissance in America’s manufacturing sector. Although the wage gap between Chinese and US workers is still significant, it has narrowed.
According to MIT, US workers had average annual wage increases of 3pc between 2003 and 2008, as Chinese workers saw 19pc gains.
So will a chunk of the jobs expected to come America’s way be low-wage? Both Serkin and Simchi-Levi think so. Will US workers have to accept them?
With more than 20m Americans either unemployed or having to settle for part-time work, it is hard to see otherwise.
The contention that lower energy costs will prove a trump card for the US when attracting manufacturers, turns the spotlight on the development of shale gas in the UK.
There is quite understandable concern for consumers about energy bills, but companies pay them too.
With the US unemployment rate at 8.2pc, President Obama has come down on the side of fracking – the controversial drilling technique used to extract gas from shale rock formations – just in time for November’s election.
Expect the debate over the extraction of shale gas in Britain to become more heated and urgent. A final question is whether the US and UK governments can do much to help their economies secure a share of the global manufacturing pie?
The short answer is yes. A survey by MIT of US manufacturers in July put a cut in corporation tax and tax credits to encourage research and development as the most helpful things Washington could do.
Obama and his Republican challenger Mitt Romney have pledged to do both.
Cameron failed his history test last night but more or less survived Letterman's barbs. BGC’s study is a reminder that the US will prove a fierce rival to Britain as both economies seek to refashion themselves this decade.
telegraph.co.uk
The 15 or so discomforting minutes that Cameron had at the Ed Sullivan Theater on Broadway were at least a break from the more chronic pain of how to pull the UK economy off its back.
A trip across the Atlantic should also have provided the Prime Minister some respite from a European crisis whose endgame looks likely to stretch into the latter part of the decade.
America’s recovery – albeit it an historically weak one – has rightly offered hope in Britain that an economy which also endured the double-whammy of a banking collapse and a housing crash can at least muster some growth.
It is a good thing, then, that Cameron did not see a new study published by Boston Global Consulting (BGC) shortly before he touched down at JFK.
It is the latest in the now ballooning genre examining the future of American manufacturing. But its central conclusion is a sobering one for the UK and other developed economies. In just a few years, it argues, the US will become a global manufacturing hub.
In other words, the world’s multi-nationals will establish factories and assembly plants in the US for the sole purpose of exporting goods to Europe, the UK and Asia. Why?
Firstly, US workers, once adjusted for their productivity, are becoming cheaper and more competitive. Secondly, the tapping of America’s vast reserves of shale gas will drive down energy costs for manufacturers.
By 2015, BGC claims, average manufacturing costs in the US will be 8pc lower than in the UK, 15pc than in Germany and France, 21pc than in Japan and 29pc below Italy. Indeed, the study says a few companies are already doing it.
It points to Toyota assembling cars in Kentucky that are destined to be driven on South Korean roads, Siemens building gas turbines in North Carolina that will ultimately be used in Saudi Arabia, and Rolls-Royce making engine discs in Virginia that will be for sale across the world.
“The US is becoming one of the lowest-cost producers of the developed world, and companies in Europe and Japan are taking note,” according to Hal Sirkin, who wrote the study.
A few examples certainly do not make a trend, and not everyone believes the future for the US that the study outlines is likely.
David Simchi-Levi, an expert on manufacturing and professor at the Massachusetts Institute of Technology (MIT), argues instead that the trend towards regional manufacturing will ultimately dominate over the next two to three decades.
In a retreat from the elaborate global supply chains that multi-nationals built over the last 20 years, many companies will instead want to produce their products as close as possible to the customers who are going to buy them.
The attraction of global supply chains are not what they were given the oil price has more than tripled over the last decade and become more volatile too.
“Companies realise that there is significant risk in their supply chains,” says Simchi-Levi. “We’re at a tipping point.”
Whether BGC’s prediction of the US as a global factory unfolds or not, emerging trends in manufacturing pose taxing questions for the US and the UK as they try to rebalance their economies after the financial crisis.
Greater competition on wages, particularly versus China, is cited in almost every study predicting a renaissance in America’s manufacturing sector. Although the wage gap between Chinese and US workers is still significant, it has narrowed.
According to MIT, US workers had average annual wage increases of 3pc between 2003 and 2008, as Chinese workers saw 19pc gains.
So will a chunk of the jobs expected to come America’s way be low-wage? Both Serkin and Simchi-Levi think so. Will US workers have to accept them?
With more than 20m Americans either unemployed or having to settle for part-time work, it is hard to see otherwise.
The contention that lower energy costs will prove a trump card for the US when attracting manufacturers, turns the spotlight on the development of shale gas in the UK.
There is quite understandable concern for consumers about energy bills, but companies pay them too.
With the US unemployment rate at 8.2pc, President Obama has come down on the side of fracking – the controversial drilling technique used to extract gas from shale rock formations – just in time for November’s election.
Expect the debate over the extraction of shale gas in Britain to become more heated and urgent. A final question is whether the US and UK governments can do much to help their economies secure a share of the global manufacturing pie?
The short answer is yes. A survey by MIT of US manufacturers in July put a cut in corporation tax and tax credits to encourage research and development as the most helpful things Washington could do.
Obama and his Republican challenger Mitt Romney have pledged to do both.
Cameron failed his history test last night but more or less survived Letterman's barbs. BGC’s study is a reminder that the US will prove a fierce rival to Britain as both economies seek to refashion themselves this decade.
telegraph.co.uk
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