The United States is the fifth-best country for operating a manufacturing company, with high costs limiting overall competitiveness, according to a new report.

The joint study by KPMG and the Manufacturing Institute assesses how the U.S. compares to its main trading partners as a location for manufacturing.

The report used 10 factors to determine a country’s competitiveness, including availability of skilled labor, costs and productivity, and tax rates.

Each factor was divided into two categories: primary costs—which are measured in actual cost terms—and secondary costs, which are related to the business environment and ease of doing business.

Canada ranked as the top country for the cost of doing business, followed by Taiwan, South Korea, Malaysia, and the U.S.

Brazil was lowest-ranked, followed by India, Vietnam, Mexico, and Japan.

China—one of this country's largest competitors—ranked 11th, due to poor secondary costs stemming from high operational prices.

Primary Costs

U.S. manufacturers face higher primary costs than many other leading countries, according to the report.

Primary costs scored 3.4 out of five, with five being the worst score. This score is 15.7% higher than the average score of other manufacturing locations and gives the U.S. a ranking of 14 out of 17.

The report noted that "even compared to the industrialized countries, U.S. labor costs are high."

That ranking “was primarily due to high labor costs,” the report said, adding that “even compared to the industrialized countries, U.S. labor costs are high.”

"Hourly rates in Canada, United Kingdom, and Japan range between $23 per hour and $30 per hour compared to $39 per hour in the U.S."

Mitigating Factors

The report notes that while the U.S. has higher actual costs of doing business, "much of this is offset by factors such as developed infrastructure, a better business environment, and more transparency."

"On all of the secondary factors considered, the United States ranks significantly better than countries that offer lower labor costs," the report noted.

Labor quality is a differentiating factor for the U.S., with that strength improving competitiveness.

The report also found that labor quality is a differentiating factor for the U.S., with that strength improving competitiveness and helping boost it to fifth for overall cost of doing business.

"However, there is significant competition from European countries in this regard," the report found.

"The higher weight on the quality of labor component also causes Ireland, Germany, and Switzerland to jump to the top five on the overall cost of doing business ranking."

Taxes

The report also assessed whether recent U.S. tax reform had a material impact on the relative standing of the U.S.

A comparison of the previous corporate tax rate of 40% with the current rate of 27% showed that that the reforms lifted the U.S. cost of doing business index ranking from 11th to fifth.

Tax reform lifted the U.S. cost of doing business index ranking from 11th to fifth.

Tax reform improved the U.S. ranking not only on the corporate tax measure but also on the primary cost index and the cost of doing business index," the report noted.

"With tax reform, the U.S. was considered a median tax country.

"Had the U.S. corporate tax rate continued to be 40%, it would have one of the highest corporate tax rates in the comparison group of countries."