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Biden proposes $400 billion ‘Buy American’ plan
Democratic presidential candidate Joe Biden has proposed using the federal government’s regulatory and spending power to bolster U.S. manufacturing and technology firms. ( July 9)
President Trump’s trade war was supposed to encourage American manufacturers to pack up their Chinese and other international operations and move them to the U.S.
The same is true of Covid-19, which disrupted just-in-time deliveries by shutting down factories around the world.
Instead, the uncertainty caused by Trump’s trade war and Covid-19 supply chain disruptions paralyzed corporate decision makers, and though more than 600 U.S. manufacturers opted to return to the United States this year, the number is down by one-third compared with 2018.
“A lot of companies are like frozen deer in the headlights,” said Jim Tomkins, Chairman of Tomkins International, a North Carolina consulting firm that helps manufacturers decide whether to bring their operations back to the U.S.
“They don’t like having to depend on China. They would maybe like to bring back manufacturing to Mexico or the U.S. But because of the uncertainly, they can’t tell me their requirements. They don’t know how much they’re going to sell. And given how much they don’t know, this probably isn’t the best time to make any major capital investments.
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“Their best bet,” he said, “is to wait for the vaccine and see what happens after that.”
Million new U.S. manufacturing jobs
Since 2010, more than 4,700 companies have brought back all or some of their manufacturing operations to the U.S., according to the Reshoring Initiative, an Illinois consulting firm dedicated to helping manufacturers find a way back home. The moves have created nearly 1 million American manufacturing jobs.
That doesn’t mean the U.S. manufacturing sector as a whole is growing. It actually has thousands fewer manufacturing companies than it did 10 years ago, according to the Economic Policy Institute. But thanks to reshoring, total employment is up by 403,000 jobs over that period, and there’s a chance the beleaguered sector could experience a resurgence if people like Harry Moser have their way.
The founder of the Reshoring Initiative, Moser is focused on convincing companies that local production can make sense in some circumstances.
“You just have to do the math,” Moser said.
Moser said bringing operations back to the U.S. can lower the total cost of manufacturing for as many as 30% of manufacturers, especially for automotive companies, appliance makers, and providers of essential products like personal protective equipment, pharmaceuticals, and 5G wireless technology.
His goal is to bring back 5 million jobs over the next 30 years. But to do that, he says, the U.S. has to triple the number of manufacturing jobs it brings back every year. Moser said that would be possible if currency exchange rates were more favorable to the dollar, the industry put more emphasis on apprenticeships and two-year manufacturing degrees to churn out more workers, and if health care costs were lower.
Tariffs got in the way
According to numbers Moser provided, 2018 was the best year for reshoring manufacturing jobs to the U.S. on record. More than 900 companies made the move that year, generating a record 180,000 jobs. But Trump’s tariffs got in the way.
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The problem with the tariffs, Moser said, is that they weren’t focused. Businesses were left wondering what to do, so they stopped bringing operations to the U.S..
“In theory, tariffs would have helped to convince U.S. companies to repatriate and cut back on imports if they were applied universally in terms of one country – so you would be encouraged to buy from Vietnam instead of China, or if they were applied in terms of one product,” Moser said. “But this was a piecemeal, chaotic system.”
Tariffs success story
One company that tariffs did work on was TruckLabs, a startup that makes 9-foot panels that open up on the highway to cover the gap between the truck and the trailer, saving trucking companies thousands of dollars in per-truck fuel costs each year.
Like thousands of U.S. companies over the past 40 years, TruckLabs set up its manufacturing operations in the Far East in 2016 with an eye toward minimizing costs. Aluminum mounts would be made in Taiwan. Pneumatic airflow systems, electronics and wire harnesses, in China.
But the economics of that time-worn strategy did not work out as planned.,
“Tariffs made it very hard to operate and did a lot of damage,” said Daniel Burrows, the company’s founder and chief executive. “We didn’t have the margin to suddenly spend 25% more.”
Then, when Covid-19 hit this year and caused plant stoppages at different times in different countries, Burrows realized he would have to rethink his supply chain.
Like a growing number of U.S. companies, he opted to bring practically all of his manufacturing operations back home. Now with suppliers in Cincinnati, Phoenix and Salisbury, North Carolina, Burrows says the manufacturing process is “faster, cheaper and easier.”
“We’ve saved money,” Burrows said. “We pay a little more in labor, but we’ve saved in shipping and packing.”
Moser, who heads the Reshoring Initiative, expects more companies to make the same decision over the next few years, and he says the pandemic is the chief motivator.
“Since March, 60% of companies that are reshoring have mentioned Covid as the reason for coming here,” Moser said.
Where does medical gear come from?
Data provided by his firm show that more than 640 companies are expected to bring back their manufacturing operations this year and more than 100 of them are producers of PPE, surgical gowns, masks or pharmaceuticals.
“The pandemic created a heightened awareness of supply chain risk,” said Tony Uphoff, president and CEO of Thomasnet.com, a digital media and marketing services company that caters to industrial buyers and suppliers. “Before Covid, no one had any idea where PPE, surgical gowns, scrubs and masks were manufactured. Then, all of a sudden, they learned they were made within 300 miles of Wuhan, China and that their supply chain could get disrupted.
“Every boardroom in the world said: ‘Holy smokes could that happen to us,'” Uphoff said.
In August, Uphoff’s company conducted a survey of more than 1,000 North American manufacturers and 69% said they were actively looking to bring back operations to America.
Uphoff added that 54% of those companies said they would be using the pandemic to double down on investments in technology and 28% said they were actively hiring.
Technology, Uphoff explained, is the main reason companies are able to bring manufacturing back to the U.S. They can’t compete with China in terms of labor. An American manufacturing employee makes an average of $26 an hour while his or her Chinese counterpart makes only $5 an hour, according to the Reshoring Initiative.
But with the accelerated adoption of advanced manufacturing, robotics and automation, IIOT (the Industrial Internet of Things), sophisticated cloud technology, and sensors, North American manufacturing can become very competitive, Uphoff said.
Companies can minimize the cost of labor by automating and rely instead on a new class of worker who combines engineering and mathematical skills with experience gained from trade schools and apprenticeship.
Uphoff acknowledges there is a shortage of these so-called “New Collar” workers in America right now, but there is a growing movement to grow the talent that’s needed.
“It’s definitely happening,” Uphoff said. “The pandemic has been an accelerator.”
But not everyone agrees.
Tomkins, who heads a North Carolina consulting firm, says there’s nothing easy about making the decision to come back home.
Factories turned into condos
For starters, it’s hard to bring something back that isn’t here anymore. Not only does the U.S. have a persistent inability to fill about 500,000 manufacturing jobs, but it no longer has the infrastructure to accommodate returning companies.
“The factories where that work was once done have either been turned into condos or torn down,” Tompkins said. “You’d either have to renovate or build. You’d have to buy equipment and machines, and it would be much more difficult to scale in the U.S. than in China.”
Tompkins said he recently did consulting work for a shirt manufacturer who was concerned that 80% of his product was made in China and wanted to diversify. He looked at outsourcing to Cambodia, Vietnam and Mexico, but realized that once the facilities were set up, his operations would still be dependent on China for cotton, thread and buttons.
All told, reshoring from China has its advantages and disadvantages, Tomkins said. A manufacturer can eliminate the huge transportation costs, long lead times needed for production runs, and quality control problems. But labor costs are at least five times higher in U.S. There’s a shortage of workers and it’s hard to find raw materials.
There have also been a number of events that have generated uncertainty in recent years – the trade war with China and Covid-19 being the most destabilizing.
“Decision making in uncertain times are more difficult,” Tomkins said. “There’s lots of discussions, lots of surveys, but nobody really knows what to do.”