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C) Increase in Productivity

Even as China puts pressure on U.S. manufacturers to lower prices, it's squeezing them from a different direction. Its voracious demand for raw materials has caused prices to spike. Copper prices jumped 37% last year, aluminum and zinc both rose about 25%, and oil was up 33%. In 2003, according to Morgan Stanley, the Chinese bought 7% of the world's oil, a quarter of all aluminum and steel, nearly a third of the world's iron ore and coal, and 40% of the world's cement.

This trend is leaving U.S. manufacturers with no alternative but to become more productive. Better machines, software, and advanced management techniques, for instance, now mean that U.S. companies on average produce far more per worker than they did a quarter of a century ago when manufacturing employment was high. From 1977 to 2002, productivity throughout the U.S. economy grew by half, but in manufacturing, it more than doubled. Surprisingly, despite losing huge numbers of workers, U.S. manufacturers actually finished 2003 making more stuff than they did in 2001. Output was up, if only by half a percent.

D) Moving up the Value Chain

With most of the production bases moving to China, it has become very pertinent for U.S. and other developed economies to move up the technological value chain. This requires substantial investment in research and development, Manpower training, and investment in quality education with emphasis on employable and highly-skilled workforce with the technological know-how.

Negatives for the US Economy

A) Job Losses

The cut-throat competition spearheaded by Chinese firms with their china pricing policy results in reduced market prices, which are not sustainable for companies based in the U.S.

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* Contributed by -
Syam Krishna V. K. ,
B.Tech. (Prod. Engg.), Kerala University,
MBA 2007, DOMS, IIT Madras.