The Reshoring Initiative: US Companies Are Fleeing China

Introduction

Welcome to our blog on the Reshoring Initiative, where we discuss the decline of US manufacturing and the trade deficit with China. In today's section, we will introduce our guest, Harry Moser, the founder and president of the Reshoring Initiative. We will explore the negative impact of the decline in US manufacturing on the US economy and the importance of bringing manufacturing jobs back to the United States.

Introducing Harry Moser

We are thrilled to have Harry Moser join us today. As the founder and president of the Reshoring Initiative, Moser is dedicated to bringing manufacturing jobs back to the United States. With his expertise and knowledge, he sheds light on the challenges and opportunities associated with reshoring.

The Decline of US Manufacturing and Trade Deficits with China

Over the years, US manufacturing has experienced a significant decline. In the past, the US produced about 50% of worldwide manufacturing. However, due to the growth of Chinese manufacturing, the US share has gradually declined. This decline has resulted in a trade deficit with China, which has grown from zero in 1979 to $1.2 trillion last year. Approximately one-third of this deficit is due to our trade deficit with China.

The negative impact on the US economy

The decline in US manufacturing and the trade deficit with China has hurt the US economy. The US has lost around two million manufacturing jobs to China, out of a total of six million. This loss of jobs has weakened the US economy, leading to a drain in tax revenue and a decrease in our industrial manufacturing capability. Additionally, the US is now more vulnerable in terms of national defence, as we lack the necessary industrial base to support our military efforts.

The Shift to a Service Economy

• Explore the misconception that service jobs are superior to manufacturing jobs.

• Discuss the impact of job losses on tax revenue and defence capability.

• Highlight the income potential of manufacturing jobs.

While it is often believed that service jobs are superior to manufacturing jobs, this misconception can be detrimental to the economy. Manufacturing jobs offer a variety of benefits that are often overlooked.

Firstly, manufacturing jobs have a significant impact on tax revenue and defence capability. The decline in US manufacturing has resulted in a loss of tax revenue, which weakens the economy. Additionally, the lack of a strong industrial manufacturing base makes the US more vulnerable in terms of national defence. Without the necessary manufacturing capabilities, the country would struggle to support its military efforts.

Furthermore, manufacturing jobs have high income potential. Contrary to popular belief, manufacturing jobs can pay well, often on par with or even higher than service jobs. Skilled workers in manufacturing, such as toolmakers, welders, and precision machinists, can earn as much or more than university graduates. By promoting manufacturing and providing opportunities for apprenticeships and technical training, individuals can pursue lucrative careers without the need for a traditional university education.

It is important to recognise the value of manufacturing jobs and the role they play in the economy. By shifting the focus to supporting and revitalising the manufacturing sector, we can strengthen tax revenue, enhance defence capability, and provide individuals with rewarding and well-paying career opportunities.

Understanding the Cost Advantage of China

• The main reason for the cost advantage is low wages in China.

• The evolution of China's manufacturing capabilities

• The overall cost difference between China and the US

China has long been known for its cost advantage in manufacturing compared to other countries, especially the United States. One of the main reasons for this advantage is the low wages in China. The average manufacturing wage in China is around $7 per hour, which is significantly lower than the average manufacturing wage in the US, which is around $21 to $23 per hour. This wage discrepancy allows Chinese manufacturers to produce goods at a much lower cost compared to their US counterparts.

Over the years, China has also made significant strides in evolving its manufacturing capabilities. In the past, China started with low-tech, low-cost manufacturing. However, as it gained experience and expertise, it invested in new machine tools, automation, and infrastructure, allowing it to produce goods more efficiently and at a higher quality. Chinese factories are now often newer and more automated than US factories, giving them a competitive edge in terms of productivity and cost.

When comparing the overall cost difference between China and the US, studies have shown that China's average cost of manufacturing is about 70% of the cost in the US. This includes labour costs as well as other factors such as raw materials, transportation, and regulatory compliance. The lower cost of manufacturing in China has attracted many companies to outsource their production to Chinese factories.

However, it's important to consider the total cost of ownership when comparing China and the US. This includes factors like duties, freight, carrying costs of inventory, and the risk of stocking out. When companies use a total cost approach, they often find that the cost difference between China and the US is not as significant as it may initially appear. In fact, studies have shown that the US wins in terms of total cost in 32% of cases and 46% of cases when a 15% tariff is applied.

By understanding the cost advantage of China, companies can make more informed decisions about their manufacturing strategies. While China may offer lower wages and manufacturing costs, it's important to consider other factors such as productivity, quality, and supply chain risks. The goal should be to create a balanced manufacturing strategy that takes advantage of the strengths of both China and the US, ultimately leading to a more resilient and competitive manufacturing sector.

Total Cost of Ownership Estimator

The Total Cost of Ownership (TCO) estimator is a valuable tool that helps companies make informed decisions about their manufacturing strategies. It takes into account various factors beyond the initial price, allowing companies to assess the true cost of producing goods in different locations.

By using the TCO estimator, companies can accurately calculate the total cost of manufacturing, including factors such as duties, freight, carrying costs of inventory, and the risk of stocking out. This comprehensive approach helps businesses make more accurate cost comparisons between different manufacturing locations, such as China and the United States.

Benefits of the TCO Estimator

The TCO estimator provides several benefits to companies:

• Accurate Cost Comparison: By considering all relevant costs, the TCO estimator allows companies to compare the total cost of manufacturing in different locations more accurately. It helps companies identify cost advantages and disadvantages, enabling them to make more informed decisions.

• Informed Decision-Making: With a clear understanding of the true cost of ownership, companies can make better decisions about where to manufacture their products. They can evaluate the impact of different cost factors and weigh them against other considerations, such as quality, productivity, and supply chain risks.

• Impact on Reshoring: The results of the TCO calculations can have a significant impact on reshoring decisions. Companies may discover that the cost difference between China and the US is not as significant as initially perceived when considering the total cost of ownership. This realisation can influence the decision to bring manufacturing jobs back to the United States, leading to a positive impact on reshoring initiatives.

By utilising the TCO estimator, companies can gain a comprehensive understanding of the total cost of ownership and make more informed decisions about their manufacturing strategies. This tool helps them evaluate cost advantages, consider other factors beyond the initial price, and ultimately contribute to the reshoring of manufacturing jobs in the United States.

Factors Driving Reshoring

Geopolitical Risk

One of the primary factors driving reshoring is the increasing concern over geopolitical risk. Companies are becoming more aware of the potential dangers of relying too heavily on manufacturing in countries like China. The recent events in Russia, Ukraine, and the Middle East have highlighted the vulnerability of global supply chains and the impact they can have on businesses.

By reshoring manufacturing back to the United States, companies can mitigate the risk of being cut off from crucial components and products. The fear of geopolitical decoupling, especially with China, is driving companies to bring production closer to home, where they have more control over their supply chains.

Decoupling and Supply Chains

Decoupling refers to the process of reducing dependence on a specific country or region for manufacturing and sourcing. In the context of supply chains, decoupling involves diversifying sourcing locations and reducing concentration risk. By decoupling from China, companies can reduce the potential impact of geopolitical events or disruptions in the Chinese market.

For many years, China has been the dominant player in global manufacturing due to its cost advantage. However, as geopolitical risks increase and companies seek to mitigate those risks, there is a growing probability of decoupling with China. This means that companies are actively exploring alternative manufacturing locations, such as India, Mexico, Canada, Germany, or even the United States, to reduce their reliance on China.

While decoupling is a complex and time-consuming process, it offers companies greater control over their supply chains and reduces the risk of disruptions caused by geopolitical events. By diversifying their manufacturing locations, companies can build resilience and ensure the continuity of their operations.

Overall, the fear of geopolitical risk and the concept of decoupling are significant driving factors behind the reshoring trend. Companies are recognising the importance of reducing dependence on a single country and are actively seeking to diversify their manufacturing and sourcing strategies.

Challenges and Opportunities of Reshoring

Reshoring, or bringing manufacturing jobs back to the United States, presents both challenges and opportunities for companies. In this section, we will discuss some of the key challenges companies face when moving manufacturing out of China, as well as the opportunities that reshoring can bring.

Challenges of Reshoring

One of the main challenges companies face when reshoring is the complex process of transitioning manufacturing operations. Moving production facilities, retraining workers, and establishing new supply chains can be time-consuming and costly. Companies may also encounter resistance from their current overseas partners and face difficulties in retrieving their intellectual property.

Additionally, the cost advantage of manufacturing in China cannot be ignored. Chinese wages are significantly lower than those in the United States, allowing Chinese manufacturers to produce goods at a much lower cost. This cost disparity presents a challenge for companies looking to reshore, as they need to find ways to offset the higher labour costs in the United States.

Opportunities for Reshoring

Despite the challenges, reshoring offers several opportunities for companies and the US economy as a whole. One major opportunity is the importance of a skilled workforce. By investing in training and apprenticeship programs, companies can develop a skilled workforce that can compete with other countries. Skilled workers in manufacturing, such as toolmakers, welders, and precision machinists, can earn competitive wages, providing individuals with rewarding and well-paying career opportunities.

Reshoring also has the potential to improve income equality and strengthen the US economy. By bringing manufacturing jobs back to the United States, income disparities can be reduced, as manufacturing jobs often pay well and provide stability. This can lead to a more equitable distribution of wealth and improve overall economic conditions.

Furthermore, reshoring can strengthen the US's industrial manufacturing capability and reduce the country's dependence on foreign suppliers. This is crucial for national defense and ensures that the United States has the necessary industrial base to support military efforts. Reshoring can enhance the country's self-sufficiency and reduce its vulnerability to supply chain disruptions or geopolitical risks.

In conclusion, while reshoring presents challenges, it also offers significant opportunities for companies and the US economy. By addressing the challenges and capitalising on the opportunities, companies can bring manufacturing jobs back to the United States, strengthen the workforce, reduce income inequality, and enhance the overall economic stability of the country.

Support from the US Government

The US government plays a crucial role in supporting reshoring initiatives and bringing manufacturing jobs back to the United States. Here are some key points regarding the government's role in this process:

Discussing the role of the US government:

• The US government provides support and incentives to companies to encourage them to reshore manufacturing jobs.

• Government initiatives such as tax cuts and regulatory reforms have been implemented to make the US more attractive for manufacturing.

• By partnering with industry experts and organisations like the Reshoring Initiative, the government can develop effective strategies to bring jobs back to the US.

The need for skilled workforce development and reducing the value of the dollar

• To support reshoring efforts, the US government recognises the importance of skilled workforce development.

• By investing in apprenticeship programs and technical training, the government can ensure a skilled workforce that can compete with other countries.

• Additionally, the government aims to reduce the value of the dollar to make US manufacturing more cost-competitive.

The importance of market-driven decisions over subsidies:

• The US government promotes market-driven decisions rather than relying solely on subsidies to encourage reshoring.

• Instead of providing extensive subsidies, the government focuses on creating an environment conducive to manufacturing by addressing factors such as tax policy, trade agreements, and intellectual property protection.

• This approach ensures a level playing field for businesses and encourages long-term sustainability rather than relying on temporary financial support.

By providing support for skilled workforce development, reducing the value of the dollar, and promoting market-driven decisions, the US government plays a vital role in driving reshoring initiatives. These efforts are crucial for revitalising the manufacturing sector, strengthening the US economy, and creating opportunities for well-paying jobs.

Encouraging Reshoring

If you are interested in promoting reshoring and bringing manufacturing jobs back to the United States, there are several actionable steps you can take:

1. Buy products made in the USA.

Support local businesses and manufacturers by purchasing products made in the USA. This helps create demand for domestic goods and encourages companies to keep their manufacturing operations in the country. Look for labels or certifications that indicate a product is made in the USA, and make a conscious effort to choose these products whenever possible.

2. Support politicians who prioritise reshoring.

Stay informed about political candidates' stances on reshoring and support those who prioritise bringing manufacturing jobs back to the United States. Research their policies and voting records to ensure they align with your values and goals. You can also engage in political activism by attending town hall meetings, contacting your representatives, and participating in grassroots campaigns that advocate for reshoring initiatives.

3. Spread awareness and educate others.

Help spread awareness about the benefits of reshoring by sharing information with your friends, family, and community. Use social media platforms, start conversations, and share articles or videos that highlight the importance of supporting domestic manufacturing. Educate others about the economic and national security implications of a strong manufacturing sector and encourage them to join the reshoring movement.

By taking these steps, individuals can contribute to the reshoring effort and help create a more robust and resilient manufacturing industry in the United States. Together, we can support local businesses, strengthen the economy, and prioritise the well-being of our nation.

Conclusion

In conclusion, relocating manufacturing jobs back to the United States is crucial for the US economy and national security. Throughout this blog, we have discussed the decline of US manufacturing, the negative impact on the economy, and the challenges and opportunities of reshoring. Here is a summary of the key points:

• The US has lost around two million manufacturing jobs to China, weakening the economy and leading to a trade deficit.

• Manufacturing jobs offer high-income potential and can pay as much or more than service jobs.

• The cost advantage of manufacturing in China is mainly due to low wages.

• The Total Cost of Ownership (TCO) estimator helps companies make informed decisions about their manufacturing strategies.

• Geopolitical risk and the fear of decoupling with China are driving factors behind reshoring.

• Reshoring presents challenges, such as transitioning manufacturing operations and offsetting higher labour costs in the US.

• However, reshoring also offers opportunities, including skilled workforce development, income equality, and enhanced defence capability.

• The US government plays a crucial role in supporting reshoring initiatives through incentives and workforce development programs.

• Individuals can support reshoring by buying products made in the USA, supporting politicians who prioritise reshoring, and spreading awareness about the benefits of reshoring.

By reshoring manufacturing jobs, the US can strengthen the economy, reduce dependence on foreign suppliers, and ensure national security. It is essential to prioritise the growth of the manufacturing sector and create a resilient and competitive manufacturing industry in the United States.