Shale Gas Is Cutting Energy Costs In Manufacturing And Making The US Competitive Again

James Anderson writes from Washington: Things are looking up for America’s manufacturers. Gone is the gloom and doom of the past decade when it was assumed that the country could not compete with China. This was based on the assumption that labour was so cheap in the Middle Kingdom that enterprises there could produce more cheaply than in the US. That is still true today for low value products but another factor has entered the equation: the cost of energy. China is importing more and more of the energy it needs to feed its voracious factories. However, it wastes much of its energy. American manufacturers use less than half of the energy per unit of output.

What has changed the equation and led to a renaissance of US manufacturing? The shale gas revolution. Within a decade America may be self-sufficient in gas. The abundance of shale gas in many parts of the US means that energy costs are declining. The opposite is true in China. There is shale gas there but it is not being developed as quickly as in the US.

US companies in China face many problems. It is becoming more and more difficult for foreign enterprises to operate there and make a profit. Other more serious problems are surfacing. The chief is intellectual property (IP). IP legislation in the Middle Kingdom is relaxed, to say the least. Some big US companies are quitting as they find it impossible to guard their advanced technology secrets.

Big foreign firms are entering and expanding their presence in the US. Siemens is just one example. It has invested heavily in North Carolina. Now that state is hardly known for manufacturing. Tobacco and textiles spring to mind when thinking of its main activities. Why did Siemens locate there? Cheap energy, tax concessions and more importantly, low unionisation of labour. North Carolina is one of a growing number of states – Wisconsin is the latest – in which a worker does not automatically have to join a union when starting a job. Needless to say it is regarded as a Republican state. Strange to say, President Obama is going there to be renominated as the Democratic candidate for the presidency in November.

There are two sides to every coin. North Carolina is expanding its manufacturing base but this has been achieved with about half the labour force it had in 2000. Vast amounts of capital are being invested but not many workers are needed. However those being recruited have to be capable of becoming highly skilled. Siemens is introducing the German apprenticeship system in an effort to find the right workers. North Carolina has excellent universities and technical colleges: one of the reasons why Siemens is here. However the outlook is bleak for the over thirties who are not worth retraining. They will have to make do with lower paid jobs in the services sector.

The days of huge factories with enormous labour forces are over. The future of manufacturing belongs to huge enterprises which employ only highly skilled workers. Automation is gradually reducing the number of workers needed. Siemens can now manufacture in North Carolina more cheaply than in China. There is a trend here: more and more high value products can be made more cheaply in the US than in China. Welcome to the shale gas revolution.

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