Most of us, regardless of our age, have heard the song popularized by Sophie Tucker and Eddie Cantor after World War I: “How Ya Gonna Keep ‘Em Down on the Farm (After They’ve Seen Paree?).” Read more
Advanced manufacturing is already one of the most in-demand industries in America due to workforce retirements and natural business growth, but it’s also an industry with a severe shortage of skilled workers. Read more
Many companies that offshored manufacturing jobs didn’t really do the math.
For decades, U.S. companies have been chasing cheap labor offshore and then importing products to sell in the U.S. market.
Now, Trumponomics, a broader focus on Total Cost of Ownership (TCO quantifies all relevant costs, risks, and strategic factors) and advanced manufacturing together have the potential to end the manufacturing stagnation of the past 30 years and create millions of manufacturing jobs in the U.S.
Over the past 20 years, the boom in offshoring drove our goods trade deficit up by about $640 billion a year, costing us three to four million manufacturing jobs.
The most direct way to reduce the trade deficit, as President Trump has said he wants to do, is to substitute domestic production for imports, i.e. via reshoring and foreign direct investment (FDI) in the U.S. The result of eliminating the trade deficit would be a rapidly growing manufacturing workforce for the first time in 40 years, a rise in average wages and a 25% to 30% increase in manufacturing output and jobs.
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Many companies that offshored manufacturing didn’t really do the math. An Archstone study revealed that 60% of offshoring decisions used only rudimentary cost calculations, typically just price or labor costs and ignored other costs such as freight, duty, carrying the cost of inventory, delivery and impact on innovation. Most of the true risks and cost of offshoring were being ignored.
Now is a good time to re-evaluate the cost of domestic vs. offshore production, and not just because of the risk of an angry tweet from the president.
Chinese wages have been rising by about 15% a year since 2000. As a result, the Chinese labor cost in dollars per unit of output is now about four times what it was in 2000. We estimate that about 25% of what is now offshored would come back if companies quantified the total cost. These products would generally have characteristics such as high freight cost vs. labor cost, frequent design changes, volatility in demand, intellectual property risk, and regulatory and compliance requirements.
For these most-reshorable products, such as large appliances with high freight costs, medical devices requiring high technology and quality standards, and plastic products that are getting cheaper thanks to declining natural gas and oil prices, the offshore manufacturing cost gap vs. the U.S. is now smaller than the offshoring “hidden costs” mentioned earlier.
About 25% of what is now offshored would come back if companies quantified the total cost. Click To Tweet
These costs are readily quantified using the Reshoring Initiative’s free online TCO Estimator. Since our trade deficit represents four million manufacturing jobs, the returnable 25% is equal to 1 million manufacturing jobs.
In addition to the 25% reshorable if companies would just do the math correctly, another 25% of the offshored manufacturing jobs could come back if America can become just 15% more competitive via sustainable strategies like advanced manufacturing using robots and other forms of automation, lower corporate tax rates, and regulations and a lower U.S. dollar. In total, adding approximately two million manufacturing jobs over the next 10 to 15 years is feasible. A 3.6 multiplier effect, as per the Manufacturers Alliance for Productivity and Innovation, would take the total to a gain of about 7 million jobs across the economy.
Advanced manufacturing helps level the global playing field for the U.S. First, the number of labor hours per unit of output is reduced. Second, the gap in the labor cost per hour shrinks. For example, a highly skilled robot engineer in China makes a third to a half of American pay and not the small fraction (5% or 10%) of the low-skilled Chinese workers.
In addition, acquiring capital equipment is more expensive in China because of China’s value-added tax of 13% or 17% on imports. Fortunately, the U.S. can have automation and more jobs as we reshore and draw down the four million jobs lost to offshoring.
The jobs won’t be the same, but we see a huge potential for economic growth.
The U.S. will need to fill approximately 3.5 million manufacturing jobs over the next 10 years, according to a recent study from Deloitte and The Manufacturing Institute. Given our low rate of training, they estimate there will be a shortage of 2 million skilled workers. This shortage is one of the largest barriers to reshoring. Fortunately, high visibility for reshoring will help increase the rate of recruitment, as students increasingly understand that manufacturing is, once again, a solid career choice.
According to Reshoring Initiative data, the availability of a skilled workforce and training are essential for bringing jobs back, ranking second among the reasons given by U.S. companies moving jobs back to the U.S. and foreign companies creating manufacturing facilities here. When companies reshored and failed to find the needed workforce, the transition was painful. The availability of a sufficient quality and quantity of skilled workers is often the No. 1 criterion in selecting the location for a factory and a key issue for retention and expansion.
The good news is that the bleeding of manufacturing jobs to offshore has stopped. Reshoring, including FDI, balanced offshoring in 2015, as it did in 2014. In comparison, in 2000-2003 the United States lost a net 200,000 or so manufacturing jobs a year to offshoring.
The Road Home
There are many alternative paths that might lead to a dramatic reduction in the trade deficit: stronger skilled workforce, lower corporate taxes, and regulations, border adjustment tax, lower health-care costs, lower U.S. dollar, etc.
The Reshoring Initiative is currently developing a Competitiveness Toolkit. Our objective is to offer President Trump and Congress their choice of a mix of paths that will achieve the desired reduction in the trade deficit while minimizing domestic and international resistance and unintended consequences such as inflation.
We have a long, difficult journey ahead; we need to pick the best paths.
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Throughout most of U.S. history, American high school students were routinely taught vocational and job-ready skills along with the three Rs: reading, writing, and arithmetic. Indeed readers of a certain age are likely to have fond memories of huddling over wooden workbenches learning a craft such as woodwork or maybe metal work, or any one of the hands-on projects that characterized the once-ubiquitous shop class. Read more
The Made in America Movement reached out to 25,000+ HR professionals and 17,000+ executives for our 2017 HR and Recruiting Survey. Thank you to all recruiters, HR professionals and executives that participated in our 2017 survey. We could not provide such an incredible resource without your continued support.
MAM created this year’s survey to find out how much productivity and financial waste was occurring due to traditional interviewing processes. The 2017 report dives deeply into the questions and facts organizations need to ask to hire the best efficiently.
If you participated in the survey, you should receive an email with the report summary at no charge. If you are just finding out about the report, please click here to download the 2017 HR and Recruiting Report summary.
Thank you to our partner TopPick, the New Digital Interview Kit, for supporting the 2017 survey. This year’s effort was a huge undertaking for the MAM team. We reached out to more than 42,000 professionals at thousands of companies across America. These companies included high-growth 30 person teams to companies with 2,000+ employees from industries including B2B Services, B2B SAAS, hospitality, consulting and more. It’s great to see the next generation of technology not supporting MAM but also being built in Atlanta.
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Too many American companies base decisions about how to source manufacturing largely on narrow financial criteria, never taking into account the potential strategic value of domestic locations. Proposals for plants are treated like any other investment proposal and subjected to strict return hurdles. Tax, regulatory, intellectual property, and political considerations may also figure heavily in the conversation. But executives, viewing manufacturing mainly as a cost center, give short shrift to the impact that outsourcing or offshoring it may have on a company’s capacity to innovate. Indeed, most don’t consider manufacturing to be part of a company’s innovation system at all. Read more
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