The next chart – also by BCG, shows advantages and disadvantages by country.  Note there still is a 1% advantage held in the manufacturing process of China versus the USA as noted above.  The name which stands out in this chart, however, is Mexico, which had a manufacturing advantage of 12% in 2016. Mexico’s advantage to the USA stems from low labor and energy costs. As the United States builds things with high value components and then has them assembled in Mexico, it actually helps American companies maintain high margins and even preserve jobs.

The discussion above becomes that much more meaningful when the tax cut is considered. If the proposed 20% corporate tax rate were implemented, the United States rate would be 20% lower that the prevailing 25% rate in China and 33% lower than the prevailing 30% rate in Mexico. We believe those differentials create a compelling incentive for manufacturing plants and jobs to return to the United States. If companies were willing to move out of the country based on tax differentials, they should be equally as willing to move back to the United States when the differential favors our nation.

J. Richard Fredericks is founding partner at Main Management, a participant in the ETF Strategist Channel.

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