China-US Labor Costs: Procurement View

Based on years of experience in international procurement, I believe that comparing labor costs between China and the U.S. should not be limited to superficial data but requires a comprehensive evaluation combined with overall supply chain efficiency. Currently, the labor markets in the two countries are following distinctly different trajectories, which has profound implications for global procurement strategies.

Evolution of Labor Costs in the Chinese Market
Over the past decade, labor costs in Chinese manufacturing have maintained an average annual growth rate of 10–15%. Taking Shanghai as an example, the minimum hourly wage in 2024 has reached 26.4 RMB (approximately $3.7), a figure that would have been unimaginable a decade ago. Behind this cost increase are the combined effects of demographic changes, rising living standards, and policy guidance.

Characteristics of Labor Costs in the U.S. Market
The U.S. labor market presents a different picture. While the federal minimum wage remains at $7.25 per hour, standards vary significantly across states, with Washington, D.C., reaching $17 per hour. It is worth noting that the composition of labor costs in the U.S. is more complex, including hidden costs such as health insurance and pensions.

Key Considerations for Procurement Decisions
In practical procurement decisions, we focus on the following core metrics:

1. The proportion of labor costs in total costs: When this ratio falls below 24%, the significance of pursuing low labor costs alone diminishes substantially.

2. Logistics cost control: If transportation costs exceed 10% of the total product value, the choice of procurement location needs to be re-evaluated.

3. Total landed cost calculation: Taking a standard container as an example, if transportation and related costs amount to $5,000, the value of the goods should be at least $50,000 to achieve economies of scale.

Future Trends and Procurement Strategy Recommendations
As China transitions toward high-end manufacturing, its labor cost advantage is shifting toward skill-based advantages. We advise clients to:

• Consider emerging manufacturing bases in Southeast Asia for labor-intensive products.

• For products with higher technical requirements, China’s mature supply chain system remains competitive.

• In the U.S. market, manufacturers with higher levels of automation can be considered to balance costs.

Conclusion
Informed procurement decisions must go beyond simple wage comparisons and comprehensively consider factors such as quality stability, supply chain resilience, logistics efficiency, and total cost of ownership. In the context of the ongoing restructuring of global supply chains, establishing a diversified supply system has become an essential strategy for risk mitigation.