Sunday, June 15, 2008

A Hidden Benefit To Rising Oil Prices

The steady climb in the price of gasoline and electricity is accompanied by a hidden benefit. According to the Wall Street Journal (6/13/08), there has been a marked slowdown in outsourcing of factory work to China. Some companies are even bringing their production back to the United States. The reason for this is the skyrocketing price of transporting goods caused by the rise in crude oil prices. The example of DESA LLC , a company in Bowling Green Kentucky that through one of its subsidiaries manufactures heaters. Recently, the company moved most of its production from China back to the United States. Since January, the company has endured a 15% jump in shipping costs, according to its retail heating division president Claude Hays. Further increases in shipping costs are due next month.
The WSJ article further states that the price of shipping a standard 40 foot shipping container has tripled since the year 2000 and is set to double yet again as prices surge towards $200.00 a barrel for oil.
If this trend continues, it could provide some respite to American workers, who are forced to compete with workers whose wages and living costs are a fraction of those in the U.S. Rather than abandon China and the developing world, it might be a better long term strategy to expand Chinese markets for consumer goods that are now being manufactured for sale in the U.S.
This story highlights the fact that hourly wages are far from the only component in the final price tag of manufactured goods. Very often, flexibility and creativity of the work force can increase production without lowering worker's wages. Raw materials, factory maintenance and transportation are all factors that must be viewed in pricing manufactured goods.
It would have been far better for American manufacturers to be motivated by long term concern for stability of the American tax base and economy. Unfortunately, this has not been a dominant trend. The more pragmatic consideration of the skyrocketing costs of transporting finished goods from far away has proved to be of more pressing concern. Hopefully, those corporations that are being stung by rising oil prices will learn from this bit of poetic justice. Unfortunately, the job drain due to outsourcing of customer service , computer programming and other jobs overseas continues unabated. The frustration of discussing usurious credit card interest or other customer service questions with a customer service person in Asia continues to be a common place occurrence. It might be wise to reward American companies who use American labour through hefty tax breaks. This would shore up the tax base and stimulate the economy.
Hopefully, the presidential candidates will recognise this economic problem as an area of high priority during the next presidential term. We would do well to extract some good from the seeming misfortune of rising oil prices. A wake up call is only an annoyance to those who wish to remain sleeping.

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