Reshoring is the practice of bringing manufacturing and services back to the U.S. from overseas. It’s a fast and efficient way to strengthen the U.S. economy because it helps balance the trade and budget deficits, reduces unemployment by creating good, well-paying manufacturing jobs, and fosters a skilled workforce. Reshoring also benefits manufacturing companies by reducing the total cost of their products, improving balance sheets, and making product innovations more effective.
There is strong support for the Reshoring initiative and the benefits seem to make sense. Namely, reshoring would solve much of our current supply chain challenges. There are some realities however that will make reshoring challenging.
The current trend of bringing manufacturing back the US started in a shift in policy focus advocated by former president Donald Trump. This effort has had some impact due to the overall containment of China in the high-tech sector and the supply chain crisis that emerged from the epidemic. Some manufacturers have begun to move their factories back to the US, in areas such as medicines and chip manufacturing. Some South Korean and Taiwan island's manufacturers are planning to open new factories in the US due to the pressure from Washington. It is not so simple as rebuilding factories or assembly lines however, it needs to be supported by a suitable social climate and work ethic. Manufacturing careers would look much different than baby boomers recall. Factories would need more robotic engineers than line workers. The assembly lines of today would be mostly automated and robotically maned. Still, labor is a major consideration. The US is ambitious to restore its manufacturing supply chain, especially at the middle and low end, but it is impossible to achieve this goal by relying solely on policy investment or vigorously squeezing Chinese manufacturing. The competitiveness of China and the US in the manufacturing sector depends not only on the high-end, but also on which side has sufficient willing and capable labor forces to engage in middle and low-end manufacturing. This is also an important factor affecting future China-US trade relations.
The Walmart Factor
The US will not bring manufacturing back as long as Americans continue to shop for the lowest price. Walmart, and other discount shoppers are the primary reason we don’t have manufacturing here. Americans would prefer to buy cheaper Chinese-made products at Walmart than buy US-made products from a local manufacturer and who can blame them. When Americans are ready to deliberately support the domestic economy, instead of supporting the Chinese and Southeast Asian economy, manufacturing will return.
Now, a big reason people are so focused on shopping for the lowest price, is because working-class wages have been flat for 30 years. The typical middle class wage earner doesn’t have the buying power he had when manufacturing was booming in the US.
We have been trained for 50 years to buy cheaper goods. Retraining consumers to buy more expensive, domestic products will likely have limited success if consumers are given a choice. Patriotism will only provide so much purchasing enthusiasm.
The Manufacturing Gap
Why is Tesla one of the only major high-tech manufacturing companies to emerge from the United States in the past decade or so? Why have politicians been trying and failing since the Clinton administration to turn the U.S. into a powerhouse of clean-energy exports?
The culprit is a frustrating and persistent shortcoming of the American economy. You could call it “the manufacturing gap.” It works like this: When new technologies are in the basic research stage and decades away from reaching a market, the U.S. lavishly supports them. But when those same technologies are on the verge of commercialization and being prepared for mass production, American support drops away. No bank officer or venture capitalist will write their inventors a loan; no local manufacturing hub will help work out the final kinks in their production line. The new technologies fall into a “valley of death” between conventional R&D and commercialization. Their inventors either license the technology abroad or go bankrupt, selling years’ worth of intellectual property for pennies on the dollar.
Perhaps the problem is simpler: The U.S. doesn’t have a high-end manufacturing sector because nobody will finance one. Small and medium-size American companies now struggle to borrow the billions of dollars necessary to finance a new factory, especially if those loans take 10 or 20 years to pay out.
To successfully reshore the United States the government will need to make enormous financial commitments for financing options. Also, on the legislative side, there will need to be additional support. All the while implementing technologies which will be environmentally friendly.
There are plenty of hurdles to bring back domestic manufacturing but there are just as many advantages. We can do it with the right support, the right industries and the support of the American people.
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