If costs are higher in one location than another, market forces will push them closer to each other, given enough time.
How much time?
Well, in the case of the U.S. and China … as much time as we’ve let pass since we first started worrying about low cost production over there.
… The cost of manufacturing in the U.S. will fall below costs in China within the next three years, in large part due to the rise of fracking.
Fortune, citing an analysis by Boston Consulting Group, reported that the average cost to produce goods is currently only 5 percent higher in the U.S. than in China, and that the cost is expected to be 2 to 3 percent lower by 2018.
Rising wages in China and increased industrial productivity in the U.S. contributed to that trend, but the report cited hydraulic fracturing as the primary reason for the shift in costs.
Of course, some will wonder how this is possible, when wages are still much higher in the U.S. The answer is that you get what you pay for. American workers get paid more because they produce more, and once you account for that, the difference in cost is the 5% they’re talking about.
Via Marginal Revolution.