The cost competitiveness of US manufacturing has been improving significantly over the past decade, compared with many of its biggest trading partners—most notably China, according to the Boston Consulting Group (BCG). In terms of direct costs, in fact, the US playing field is essentially level with Yangtze River Delta, China’s chief production zone. Despite the recent weakening of the yuan, and factoring in the differences in productivity and energy costs, China’s manufacturing cost advantage over the US shrank from 14 percent in 2004 to an insignificant 1 percent in 2016, according to BCG’s analysis of data collected for the BCG Global Manufacturing Cost-Competitiveness Index.

Mexico’s role as a strategic near-shore manufacturing location is likely to grow. The index shows that Mexico’s manufacturing cost advantage over the United States, China, and other global manufacturing destinations is wide. This is being driven by low labor and energy costs. BCG sees Mexico, unlike low-cost destinations in Asia, as an asset to US manufacturing competitiveness, because products built in that country tend to contain high-value, US-made components and assemblies. Mexican assembly plants, therefore, help preserve US manufacturing jobs.

The rapid advances of manufacturing technology promise to boost US cost competitiveness even further. Autonomous robots, additive manufacturing machines, digital simulation tools, and other smart systems enabled by massive data processing — a development known as Industry 4.0 — have the potential to dramatically improve productivity.