The Rise of the Internet of Goods: A New Perspective on the Digital Future for Manufacturers >> HOME


The Globalization Indicator

Before discussing the potential future digital strategies for manufacturers, it is important to review the link between digitization and globalization. With weak multifactor productivity growth and lagging investment in information technology, it is little wonder that foreign competition has heavily impacted domestic manufacturing. One way to see this is to look at prices. The price gap for U.S. producer prices for finished goods (except energy) compared to the price of imports from China is widening.

Since 2004, when the data began to be collected by the BLS, the price of imports from China has been basically flat, despite a tripling of Chinese manufacturing wages over the same period.*

By contrast, the producer price of U.S. finished goods (except energy) has risen roughly 30% over this stretch. The implication, if we take these numbers seriously, is that the price gap between U.S.-made goods and Chinese imports has been widening. This is consistent with the fact that Chinese imports continue to grow faster than domestic manufacturing production. In 2017, imports from China, adjusted for inflation, rose by 9.4%. By comparison, the gross output of domestic factories only rose by 2.2%.

The challenge for manufacturers is to develop a vision for digitization that makes business sense even if these price trends coming out of China continue. 

The Price Gap Between U.S. Manufacturing Prices and Chinese Imports Is Still Widening

 
Figure-6aweb.png
 

*As reported by the People’s Republic of China, average annual manufacturing wages increased from 24,192 yuan in 2008 to 64,452 yuan in 2017. That is roughly equivalent to $10,000 per year, given the exchange rate of 6.7 yuan to the dollar in 2017.