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A Project of The Annenberg Public Policy Center

Biden Pads Economic Stats

In a speech in Miami, Vice President Joe Biden puffed up two statistics related to bringing manufacturing jobs back to the U.S. from overseas.

Biden claimed 54 percent of U.S. companies with facilities in China said they “plan on coming home” next year, citing an industry survey. Actually, the survey found that 54 percent expressed “an interest” in bringing business back to the U.S., but only 24 percent already have begun returning or plan to do so in the next two years.

Biden also used outdated, and inflated, figures when making a point about cheaper natural gas in the U.S. acting as an incentive for reshoring, saying that natural gas in the U.S. is “three to five times cheaper” than in Europe and “five to seven times cheaper” than it is in Asia. Those figures were accurate in 2012, but a dramatic drop in the price of natural gas overseas has significantly cut those ratios.

Biden made the comments about manufacturing in a speech in Miami on Sept. 2. Interest in the speech was heightened as Biden mulls whether to run for president.

Manufacturing Coming Home

Biden opined that the U.S. is “on the verge … of a potential for an economic renaissance.” As evidence, he pointed to a survey by the Boston Consulting Group, a global management consulting firm.

Biden, Sept. 2: There’s another outfit called the Boston Consulting Group in Boston, Massachusetts. Surveys every American company that has an investment in China, a facility in China, and asks the same question the last half dozen to a dozen years, “What are your plans for next year?” This year, 54 percent of them said, “I plan on coming home.”

Biden is referring to a survey by the Boston Consulting Group that was released in October 2014. According to a press release for the survey, “a majority (54 percent) expressed interest in reshoring.” But that was an aggregation of several responses, only a portion of which included those who said they planned to reshore facilities to the U.S. in the next two years, let alone the next year as Biden framed it.

The survey question —  which was answered by 161 company executives that currently manufacture in China (not “every American company that has a … facility in China,” as Biden said) — was, “Given the fact that China’s wage costs are expected to grow, do you expect your company will move manufacturing to the United States?”

Among the respondents, 16 percent said they already had begun moving some manufacturing back to the U.S. Additionally, 8 percent said they planned to move some production to the U.S. “in the next two years.” Another 10 percent said they were “actively considering doing this, although we have not made a final decision,” and 20 percent said they were considering doing this “in the near future.” (See Slide 3.)

In other words, 24 percent reported that they had begun to reshore already or planned to do so in the next two years. To get to the 54 percent figure cited by Biden, one would have to add the 30 percent who said they were “actively considering” it, or who were considering some reshoring “in the near future.” That’s a stretch.

Outdated Prices of Natural Gas

What’s causing the reshoring of manufacturing? Biden attributed it, in part, to the cheaper cost of natural gas in the U.S. — though the Boston Consulting Group’s question cited rising wages in China.

Biden, Sept. 2: Natural gas — the stuff that runs factories — is three to five times cheaper here than it is in Europe and five to seven times cheaper than it is in Asia. So there’s incentive to come home.

On Aug. 31, the price of natural gas in the U.S. was $2.76 per million British Thermal Units. It was $6.95 in Europe on that date, or just over double (Biden said it was three to five times higher there). It was $8.40 in Japan, or just over triple (Biden said it was five to seven times higher there).

Rafael McDonald, director of Global Gas and Liquefied Natural Gas at IHS Energy, said that while it is possible to cherry-pick dates to make a point, the import price of natural gas this year has generally been two to three times higher in Europe and three to four times higher in Asia.

McDonald said prices at Henry Hub, a distribution hub in Louisiana and a standard U.S. benchmark, have fluctuated between $2.50 and $3, while prices in Europe were about $6.75. And in Asia they have been between $7 and $9.

The prices in Asia haven’t been five to seven times higher than the U.S. prices since 2012, McDonald said. And the prices haven’t been three to five times higher in Europe since early 2013, he said.

Since then, prices for natural gas have fallen everywhere, but even more rapidly in Europe and Asia. For example, McDonald said, prices in South Korea went from about $16 in March 2014 to about $9 in June of this year. Over that same time frame, prices at Henry Hub went from $4.88 to $2.77.

Biden’s claim that natural gas is cheaper in the U.S. than overseas is still correct, though inflated. But McDonald warned that the import price is not the same as the price paid by manufacturers in many countries. For example, he said, the Chinese government highly subsidizes the price of natural gas. So the import price differential to an American company with a factory in China would not be nearly as stark as the import price suggests.

We also note that while the number of manufacturing jobs in the U.S. has gone up in recent years, it still isn’t at the level it was before the recession.

From December 2007, when the recession started, through August, the U.S. has lost 1.4 million manufacturing jobs, according to the Bureau of Labor Statistics. Manufacturing jobs hit bottom in February 2010 with about 11.5 million jobs, and the number has climbed since then to 12.3 million jobs as of August. But it’s still not at the level it was in December 2007 (13.7 million) or even when Obama took office in January 2009 (nearly 12.6 million).

Biden has been trumpeting a manufacturing renaissance for years, and there has been some modest growth. The U.S. added an average of 165,000 manufacturing jobs a year from 2010 to 2014. But job growth has slowed considerably with just 28,000 additional jobs in the first eight months of 2015. In January, the Information Technology and Innovation Foundation – a bipartisan think tank – called the renaissance a “myth.”

— Robert Farley and Eugene Kiely