A recent report by Boston Consulting Group (BCG) put forth an argument that a certain economy could challenge China's status as the world's preferred manufacturing base by 2015. Can you guess which economy it can be? Alas, how much ever we may want, it is certainly not India. Instead, that economy is none other than the US. Surprising, isn't it? Even I was quite bewildered when i read this. And though it cannot be said with any certainty how things will turn out, it would be worth noting the arguments behind the view.
Let's first understand what led China into becoming the global manufacturing hub. There were three main reasons: Cheap labour, Cheap currency and Robust government initiatives to attract foreign capital. However, the Chinese Yuan has appreciated by about 20% against the US dollar over the last five years. During the same period, China's annual inflation has on an average been 1% higher than that of the US. What is also worth noting is the fact that between 2005 and 2010, pay and benefits surged by 19% annually for average Chinese factory workers.
Compare that with a modest rise of only 4% for US workers. By 2015, BCG estimates US manufacturing to be just as economical as Chinese for many goods made for North American consumers. In fact, after hitting a low of 8% in 2008, the US share of global exports has been on the rise. This means good news for the US dollar but bad news for emerging economies including India. Many believe that the Indian rupee has been beaten down mainly due to the Eurozone crisis and will regain lost ground once the crisis eases. However, if the US economy does make a comeback, and the Indian economy continues to suffer from a high current account deficit and high inflation, the rupee may remain depressed for much longer than we think it should.
Let's first understand what led China into becoming the global manufacturing hub. There were three main reasons: Cheap labour, Cheap currency and Robust government initiatives to attract foreign capital. However, the Chinese Yuan has appreciated by about 20% against the US dollar over the last five years. During the same period, China's annual inflation has on an average been 1% higher than that of the US. What is also worth noting is the fact that between 2005 and 2010, pay and benefits surged by 19% annually for average Chinese factory workers.
Compare that with a modest rise of only 4% for US workers. By 2015, BCG estimates US manufacturing to be just as economical as Chinese for many goods made for North American consumers. In fact, after hitting a low of 8% in 2008, the US share of global exports has been on the rise. This means good news for the US dollar but bad news for emerging economies including India. Many believe that the Indian rupee has been beaten down mainly due to the Eurozone crisis and will regain lost ground once the crisis eases. However, if the US economy does make a comeback, and the Indian economy continues to suffer from a high current account deficit and high inflation, the rupee may remain depressed for much longer than we think it should.
US nominal GDP was nearly $14.5 trillion in 2010, approximately a quarter of nominal global GDP. The European Union has a larger collective economy, but is not a single nation. Its GDP at purchasing power parity was also the largest in the world, approximately a fifth of global GDP at purchasing power parity. The U.S. economy also maintains a very high level of output. I usually hate giving numbers in my blog but then sometimes I have too. Apologies pls.! In 2010, it had a per capita GDP (PPP) of $46,844, the 7th highest in the world. The U.S is the largest trading nation in the world. Its three largest trading partners of 2011 were Canada, China and Mexico. Remember pls.! May be asked in Tata Crucible Quiz.!! ah,Carry on.
The United States is home to 139 of the world's 500 largest companies, which is almost twice that of any other country. About 60% the global currency reserves has been invested in the United States dollar and only 24% in euro. The country is one of the world's largest and most influential financial markets. Foreign investments made in the United States total almost $2.4 trillion, which is more than twice that of any other country. American investments in foreign countries total over $3.3 trillion, which is almost twice that of any other country.
The labor market in the United States has attracted immigrants from all over the world and its net migration rate is among the highest in the world. The United States is one of the top-performing economies in studies such as the Ease of Doing Business Index, the Global Competitiveness Report. Last but not the least of all, nothing can beat US in terms of technology and Innovation. That's the sheer truth.
Food for thought:- Word of caution infact for some - According to the Tax Foundation’s Microsimulation Model, to erase the 2011 U.S. budget deficit, the U.S. Congress would have to multiply each tax rate by 2.4. Thus, the 10 percent rate would be 24 percent, the 15 percent rate would be 36 percent, and the 35 percent rate would have to be 85 percent. Total U.S. government debt is now up to 90 percent of gross domestic product. Still, one can't have the guts to write off US.
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