Transportation costs and local manufacturing

A question from Yahoo! Answers:

Will higher fuel prices lead to more manufacturing and agriculture in the US.?

For decades cheap transportation has made globalization possible. Quality manufacturers were always global. You still have to go to Italy to get the best shoes. At one point do risk combined with fuel costs make it cheaper to have it made locally again?

You seem to be under an impression that in the recent years there has somehow been less manufacturing and agriculture in the U.S. than before. This is simply not true. There is more manufacturing and agriculture in the U.S. today than ever before. However, both manufacturing and agriculture in the U.S. are increasingly mechanized and automated, so expansion in manufacturing and agriculture is accompanied by job loss. Since early 1960s, the contribution of manufacturing to GDP remains stable (16-17%), while the percentage of workforce employed in manufacturing fell from 27.7% in 1962 to 11.5% in 2002. Agricultural employment has shrunk even more dramatically. In 1870, half of the U.S. workforce was employed in agriculture. By 1920, the percentage dropped to a quarter. Now, it’s about 3%.

The process is global and affects both high- and low-income countries. Between 1995 and 2002, the world’s manufacturing output increased 30 percent, while the number of manufacturing jobs worldwide has decreased (the number of manufacturing jobs fell by 11% in the U.S., by 12% in both Russia and South Korea, by 15% in China, by 16% in Japan, and by 20% in Brazil).

To return to your question, to have something “made locally again” would generally require more transportation. You brought up shoes, so let’s think about shoes. Right now, shoes are transported internationally. The alternative is to transport internationally cow hides, plastics, and glue, which weigh more than shoes… In the long-run, local supply chains could re-emerge in response to rising transportation costs (beef slaughter and leather tanning could become local again, thus enabling local shoemaking), but that would be a process that can easily take decades… One thing to think about though is that the centralization of beef slaughter has occurred all the way back in mid-19th century, when transportation costs were way higher than today, so in order for the centralization to reverse, transportation costs must rise to pre-1850 levels.

1 thought on “Transportation costs and local manufacturing

  1. Wooglet

    I appreciate your answer, and was surprised than manufacturing is not on the decline in the US. I am confused about some of the details though. Since the US is the leader in production of slaughtered Beef with us producing 10% more than we can eat. Indeed, only 65% of raw hides in the world are produced outside the US.

    The other main ingredient in leather is Chromium Salts which come from Chromite of which the US has the third largest known reserves and there are only about 8 countries that have any.

    How would transportation costs go up if we produced the Chromium salts, and Leather here? Yet in a list of the 7 top chromium producers we are not listed.

    It seems obvious that it costs more to ship chromite ore, than chromium, and raw hides rather than tanned leather?

    I believe you and I am not arguing. I just think I am missing something.

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