Makerspaces are a good idea for any community that wants to accelerate the development of manufacturing businesses in their region. According to Makerspaces.com, a Makerspace “is a collaborative work space inside a school, library or separate public/private facility for making, learning, exploring and sharing that uses high tech to no tech tools. These spaces are open to kids, adults, and entrepreneurs and have a variety of maker equipment including 3D printers, laser cutters, CNC machines, soldering irons and even sewing machines.”Read more
The panels on the third day (March 25th) of the virtual CPA conference highlighted how the technology industry contributes to national security and the economy as well as how a currency policy would contribute to President Biden’s “Build Back Better” industrial strategy.Read more
The second day of the CPA virtual conference held March 23-27th featured two panels:
- the first on the topic of “Reforming Corporate Taxation to Help Reshore Our Industries,” and
- the second on ”Buy American.”
In the first panel, the focus was on whether or not additional tax reform is needed by Congress to make sure that tax loopholes that currently favor multinational corporations over domestic companies will be closed.Read more
The Coalition for a Prosperous America held its annual trade conference virtually for the first time on March 23 – 26, 2021. I had the pleasure of attending the annual trade conference in person six years in a row when it was held in Washington, D. C., but last year’s conference had to be canceled on short notice because of COVID shutdowns. This year’s virtual conference was free to all CPA members and the program ran from 11 AM – 4 PM ET each day. The conference was a huge success because of the valuable content of the sessions, lack of technical glitches, and Melissa Tallman’s hard work.Read more
One definition of the “American Dream” is “The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version of success in a society in which upward mobility is possible for everyone. The American dream is believed to be achieved through sacrifice, risk-taking, and hard work, rather than by chance.” Wikipedia states, “The American Dream is rooted in the Declaration of Independence, which proclaims that “all men are created equal” with the right to “life, liberty and the pursuit of happiness.” The question is: Are we losing the “American Dream.?”Read more
It’s exciting to have a new Maker Space in Southern California. Maketory is an industrial coworking facility that provides flexible fabrication and manufacturing in a 26,000 sq. ft. building in the Miramar/Mira Mesa area of San Diego, California. Since opening in December 2019, Maketory has become a hub of creativity and innovation for inventors, innovators, and entrepreneurs as the only Maker Space south of Carlsbad in North San Diego County.
I visited Maketory on February 11th and was given a tour by Manager Shaun Kain. He said that they offer private office suites, private work studios, on-site storage for materials and supplies, free Wi-Fi and free parking. The ground floor of the facility contains a wood shop, metal shop, welding area, prototype/assembly area, 34 private work studios, and a blacksmith shop outside the back of the building. The second floor has a small and large conference room, an open space for meetings or training sessions, and private offices.
The wood shop contains the following equipment: a 4’ X 8’ 3-axis router, bandsaw, table, scroll, panel, and chop saws, lathes, drill presses, wide belt sander, disc, spindle and edge sanders, a 20” planer and 12” jointer.
The metal shop has 10’ X 6’ Flow waterjet, MIG and TIG welders, belt and disk grinders, manual lathe, manual and CNC mill, plate roller, shear, and tube bender, cold saw, band saw, and drill press.
The prototyping/ assembly area contains 150- and 80-watt lasers, 3D printers, and workbenches. The blacksmith shop contains 110- and 135-ton pneumatic hammers, 50-ton screw press, as well as forges, anvils and hammers.
I was also able to speak with Carlos Shteremberg, one of the founders of Maketory When I asked for background information to help understand why he established Maketory, he said,
“I was born in Mexico City and moved to San Diego in 1998 and got a degree from USD in business and accounting. I worked in manufacturing and became president of Pico Digital, a communication company that provided digital TV to hotels and apartments. We were a partner with Dish Network and had a significant market share. The majority of our manufacturing was in San Diego, as well in Taiwan, Canada, and Mexico. The company was purchased in 2016 by HIG Capital, a private equity firm, but I continued as president for a while. Then, I looked for something to do next, and we created Maketory, a facility that would be a place for coworking and small-scale manufacturing while serving as a tech and industrial incubator for the San Diego community.”
“I learned that opening a new business is always more difficult than you expect and takes more money than you expect. So, you have to endure some rough times, and some entrepreneurs give up. It’s also hard to transition from working in an established business to starting a new business. We wanted to create an environment where businesses and individuals can quickly achieve success with minimal investment. Not everyone is a software developer that can work out of a home office or a traditional coworking space. There are a lot of individuals, small businesses, and entrepreneurs that have to do physical things, so they need a physical operating space that isn’t cost-prohibitive. Also, people don’t want to be alone so a Maker Space creates a social atmosphere.”
In response to my question about funding to start Maketory, he said,
“We are totally self-funded as a for-profit corporation when most Maker Spaces have a non-profit sponsor. Our lowest membership is $249/month for using all of the shop space. Private work studios and offices start at $300/month. We require a commitment of one year for a membership agreement because we want to develop a commitment of respect for our facility and equipment. We have a professional staff of managers and instructors for the classes we provide. At Maketory, you to go as fast as you want. We have some of our members that have been able to make products in only a few weeks.”
He added, “Larger existing companies can benefit from using the facilities of Maker Space to develop prototypes for new products because there are many companies that subcontract out manufacturing services and don’t have the in-house equipment to make a prototype.”
I asked if they offered classes on how to use the equipment, and he said, “Yes, our Maketory Academy provides classes for operating every machine, as well as how to design, Lean manufacturing, and robotics. Members have to pay separately for the classes they need, which range from $120 – $350, depending on the topic. We partner with LSSI and CMTC to help some members get help on subsidizing the classes. Our Maketory Academy is an aspect of our business that we see expanding into the future to service the San Diego community, including students, colleges, high schools, veterans, active military. And local entrepreneurs. The Lean training is provided by LSSI, headed up by Luis Socconini.” I told him that I got my Lean certification from LSSI in 2014.
I asked how they were affected by the COVID pandemic that put another Maker Space, Vocademy, out of business in Riverside. He said, “We had only been open three months, so it hurt to have to close for a few weeks. But it gave us time to put the safety protocols required by the state in place before opening back up in May. We now have about 160 members. Most of our members stuck with us during the shutdown, unless they had to move out of town for a personal reason or job.”
I told him that I’ve been a board member for the San Diego Inventors Forum and give an annual presentation on how to select the right processes and sources for your new product. I offered to give the presentation in person for his members or record a video that could be watched by his members. He said that sounds like a good idea.
In conclusion, Maker Spaces are a good idea for any community that wants to accelerate the development of manufacturing businesses in their region. After visiting Maker Spaces in several states, Maketory is one of the very few that have been started by an entrepreneur as a for-profit business. Most Make Spaces have had an economic development agency, chamber of commerce, or community college as their sponsor. Let’s hope that more successful entrepreneurs will follow the example of Carlos Shteremberg in the future.
On Sunday evening, February 14th, Curtis Ellis passed away from a long struggle with bladder cancer at the age of 67. Curtis was a true patriot and defender of liberty, who believed in all of the greatness our country and devoted much of his life to putting American first in economic policies to benefit American workers and not just Wall Street. Curtis’ career included work as a campaign manager for state and federal elections, working for Congress as a media liaison for the New York State Senate Central Staff and held a senior staff position in the U.S. House of Representatives. He had decades of experience as a journalist, producer, writer and reporter for the New York Times, San Francisco Chronicle, Chicago Tribune, Time magazine and other outlets, such as HuffPost and World Net Daily. He appeared on 60 Minutes, HBO, NBC, CNN, NPR, MSNBC, Fox Business and Fox News, as well as national and regional radio shows.Read more
On his very first day in office, President Biden signed an Executive Order canceling the permit for the Keystone XL pipeline. Halting work on the “pipeline in South Dakota immediately eliminated 1,000 union jobs. TC Energy, the company that was developing the project, predicts that more than 10,000 jobs will be lost in 2021 due to the order.” Only a week later, he signed an Executive Order freezing new oil or natural gas leases and drilling permits on federal land. These orders put American energy independence at risk, which will hurt American manufacturers.Read more
During his campaign, Biden laid out his economic agenda for the country, called “Build Back Better, which includes a $700 billion investment in procurement and research and development for new technologies such as biotech, clean energy and artificial intelligence.” The goal is that “the new plan will help create 5 million new jobs.” As Vice President under President Obama, Biden advocated engagement with China, but changed his tune during the campaign, “calling Chinese President Xi Jinping a “thug. ” While he repeatedly criticized “Trump’s trade and tariff war with China as being ineffective and failing to protect the US economy,” the Biden Administration must maintain the steel and aluminum tariffs order to have any hope of achieving his goal.
During his Jan. 19th confirmation hearing, Biden’s incoming secretary of state, Antony Blinken, told the Senate Foreign Relations Committee:
“President Trump was right in taking a tougher approach to China. I disagree very much with the way that he went about it in a number of areas, but the basic principle was the right one. And I think that that’s actually helpful to our foreign policy.”
An article in The Balance reported that the U.S. trade deficit with China was $315.1 billion in 2012, rose to $367.3 billion by 2015 before dropping to $346.8 billion the next year. By 2018, it had increased to $418.9 billion, before falling to $345.2 billion in 2019.”
The big drop was partly due to the 25% tariff on steel imports that President Trump enacted on top of a 10% tariff previously leveraged on aluminum. The tariffs went into effect on July 6, 2018, impacting $34 billion worth of Chinese imports.
The article explained that
“The trade deficit exists because U.S. exports to China were only $110 billion while imports from China were $393.6 billion. The biggest categories of U.S. imports from China are typically computers; cell phones; apparel; and toys, games, and sporting goods.2 A lot of these imports are from U.S. manufacturers that send raw materials to China for low-cost assembly. Once shipped back to the United States, they are considered imports.”
In the same vein, Reuters reported that the U. S. trade deficit narrowed in 2019 for the first time in six years, stating “At the height of the U.S.-China trade war last year, Washington slapped tariffs on billions worth of Chinese goods, including consumer products, thumping imports. The politically sensitive goods trade deficit with China plunged 17.6% to $345.6 billion in 2019 “
On November 17, 2020, IndustryWeek published an opinion article by Jeff Ferry, chief economist at the Coalition for a Prosperous America. Ferry wrote “it’s clear that the Trump administration’s steel tariffs have generated a boom in steel investment and a shift to newer technologies that are creating high-paying jobs for thousands of new steelworkers…The steel tariffs have succeeded by reducing the level of these imports in the U.S. This has allowed domestic steel producers to make needed investments while taking the industry forward with confidence.” He cited that “U.S. Steel Corporation produced the first ton of steel at a brand-new facility in Fairfield, Alabama, “Nucor Steel has started building a new steel plate mill in Brandenburg, Kentucky, that will employ 400 workers at an average annual salary of $72,800,” and “Commercial Metals Company announced plans to build a second rebar steel mill in Mesa, Arizona, that will employ 185 workers.”
He noted that “With steel imports down, America’s steelmakers have started investing at home. In addition to Nucor and US Steel, companies like Cleveland-Cliffs, Steel Dynamics, CMC, and AK Steel have invested billions of dollars in at least 16 major new projects throughout the nation. The top five US steel companies more than doubled their total annual investments between 2017 to 2019, from $1.5 billion to $4.2 billion.”
It’s been great that the 25% tariffs on steel have saved our critical American steel industry, but the tariffs have not been high enough to benefit most of the manufacturers in the parts producing domestic supply chain.
As a sales representative for American manufacturers that produce molded and other fabricated mechanical parts, we sometimes get feedback on quotes we lose showing that we would need tariffs of between 200 – 300% to be able to compete with Chinese prices, especially for molded rubber and plastic parts. Sometimes, the finished part price is less than or equal to the prices for the material used to make these parts. Our industry would love for tariffs to be higher and across the board on all products produced in China and imported to the U.S.
As I wrote in my last article of 2020, tariffs have helped manufacturers return to the U.S. through reshoring. We gained business in 2019 and 2020 from companies returning metal fabrication from China to the U.S.
In an article on January 22, 2021, “Biden’s Team Could Be as Hawkish on China as Trump’s, Kenneth Rapoza, CPA Industry Analyst, wrote:
“The Trump Administration got China right. It set the table on China going forward, changing the age-old establishment centerpiece of waiting for allies to okay things following one diplomatic meeting after the next. Lighthizer, Peter Navarro, Wilbur Ross and Trump himself took action, and showed that tariffs on China do not mean prices will rise across the board. The stock market didn’t collapse because of the trade war. There seems to be good momentum on China.”
I urge the Biden Administration to keep up the momentum on reducing our trade deficit with China and increasing higher-paying manufacturing jobs by maintaining or expanding tariffs on Chinese imported goods.
To appease his “Green Deal” followers, he could call the tariffs “Greenhouse Gas Emission fees” because China’s manufacturers depend on polluting coal-fired power plants due to lack of environmental regulations like we have in the U.S. Many American power plants use cleaner-burning natural gas. The welfare of our economy and our national security depend on using every tactic we have available to thwart China’s goal of becoming the world’s superpower of the 21st Century.
Reshoring of Manufacturing Increases in 2020
The United States gradually lost manufacturing jobs from the peak of 19.5 million in 1979 to 17.3 million by early 2000. However, after China was granted Most Favored Nation status that year, the loss of manufacturing jobs in the U.S. accelerated dramatically as American manufacturers moved manufacturing offshore and cheaper Chinese goods drove U.S. manufacturers out of business.
According to the Bureau of Labor Statistics, we lost 5.8 million manufacturing jobs from the middle of the year 2000 to the middle of 2010. Fortunately, we have been slowly regaining manufacturing jobs since 2010 thanks to a great extent to the efforts of the Reshoring Initiative.
In April 2010, the Reshoring Initiative was founded by Harry Moser, retired president of GF AgieCharmilles LLC, a leading machine tool supplier in Lincolnshire, Illinois, to facilitate returning manufacturing to America from offshore by providing the right tool at the right time to with the creation of the Total Cost of Ownership™ worksheet calculator spreadsheet. To help companies make better sourcing decisions, the Reshoring Initiative provides the Total Cost of Ownership™ spreadsheet for free to help manufacturers calculate the real impact offshoring has on their bottom line. The website provides an online library of more than 7,000 articles about cases of successful reshoring.
The brief definition of TCO is an estimate of the direct and indirect costs related to the purchase of a part, sub-assembly, assembly, or product.
However, a thorough TCO includes much more than the purchase price of the goods paid to the supplier. For the purchase of manufactured goods, it should also include all of the other factors associated with the purchase of the goods, such as:
- geographical location
- transportation alternatives
- inventory costs and control
- quality control
- as well as reserve capacity, responsiveness, and technological depth of the vendor.
Mr. Moser’s TCO spreadsheet includes calculations for the hidden costs of doing business offshore, such as Intellectual Property theft, danger of counterfeit parts, the risk factors of political instability, natural disasters, riots, strikes, technological depth and reserve capacity of suppliers, and currency fluctuation as well as effect on innovation, product liability risk, annual wage inflation, and currency appreciation.
Previous studies have shown that about 60% of companies made the decision to offshore based on comparing wage rates, FOB prices or landed costs, while ignoring the hidden costs and risk factors.
Thanks to the Reshoring Initiative’s TCO worksheet, companies are becoming familiar with the broad range of factors they had previously ignored. The reasons that thousands of other companies have given for reshoring in the Reshoring Initiatives library of cases helps companies to determine whether those reasons are applicable to them.
According to the annual report released on December 7, 2020 by the Reshoring Initiative,
“The projected job announcements for 2020 is 110,000, which will bring the total to over 1 million by year’s end…The combined reshoring and foreign direct investment (FDI) announcements in 2019 totaled more than 117,000 manufacturing jobs, plus an additional 24,800 in revisions to the years 2010 through 2018…Additionally, the number of companies reporting new reshoring and FDI was at the second highest annual level in history: 1,100 companies.”
The report states:
“Only products that have been offshored/imported can be reshored. Thus, the products least suitable for offshoring never left, such as heavy, high volume minerals, high mix/low volume items or customized automation systems.
The most active reshoring is by those that left and probably should not have done so, including machinery, transportation equipment and appliances. As the data indicates, reshoring is focused on products whose size and weight, e.g., transportation equipment, or frequency of design change/volatility of demand, e.g., some apparel, suggest that offshoring never offered great total cost savings.”
The term “FDI” means “Foreign Direct Investment” and refers to foreign companies that are investing in manufacturing plants in the U.S. to produce products closer to their major market of the U.S. Plants established by Japanese companies such as Toyota and Nissan, and plants established by German-owned BMW are examples of foreign investment.
However, we still have a long way to go as the report states:
“When measured by our trade deficit of about $500 billion/year, there are still three to four million U.S. manufacturing jobs offshore at current levels of U.S. productivity, representing a huge potential for U.S. economic growth.”
The report states, “Companies have consistently reported Positive Factors more often than Negative, probably because the companies place more value on demonstrating the wisdom of their current reshoring decision than on what went wrong with their earlier offshoring decision. “
The top ten positive factors that influenced a reshoring decision are:
- Proximity to customers/market
- Government Incentives
- Eco-system synergies/Supply chin optimization
- Skilled workforce availability/training
- Impact on domestic economy
- Lead time/time to market
- Automation Technology
- Customer responsiveness improvement
The top ten negative factors influencing the decision to reshore are:
- Freight cost
- Total Cost
- Rising Wages
- Supply chain interruption/Natural disaster risk/Political instability
- Green considerations
- Intellectual Property Risk
The top industries that are reshoring or benefitting from FDI are:
- Transportation Equipment
- Computer & Electronic Products
- Electrical Equ8ipment, Appliances & Components
- Plastic & Rubber Products
- Wood & Paper Products
- Apparel & Textiles
- Fabricated Metal Products
It’s not surprising that China ranks number one as the country from which companies are reshoring, with Mexico, Canada, India, and Japan filling out the top five. The top countries that are investing in manufacturing sites in the U.S. are: Germany, China, Japan, Canada, and Korea.
The authors note that “The South and Midwest continue to dominate cumulatively. The Midwest and Texas dominate reshoring and the South dominates FDI.” It was surprising to me that Michigan and New York were in the top five states for the number of jobs that were reshored, as they are not states where the cost of business is low. However, Texas ranked highest for both number of jobs announced and the highest number of companies reshoring.
The report authors state, “We believe the continued strength of the trends thru the end of 2019 is largely based on greater U.S. competitiveness due to corporate tax and regulatory cuts and increased recognition of the total cost of offshoring.”
It was interesting to note the impact of the COVID Pandemic on reshoring. The authors report: “The COVID Pandemic has increased in interest in reshoring as “Two in three (69%) manufacturing companies are looking into bringing production to North America (compared to 54% in February).”
“Repeated surveys show that more companies, driven by the virus crisis, have decided to reshore. We expect to see the data respond to this shift in 2021. Also due to the pandemic, we are seeing U.S. reshoring outpacing FDI for the first time since 2014…The national demand to shorten and close supply chain gaps for essential products to make the U.S. less vulnerable is most likely to benefit the following industries: PPE, medical, tech, and defense. Already, 60% of cases after March mention the pandemic as a factor in reshoring decisions. Medical equipment and PPE are the first responders of new reshoring with cases already double from last year.”
In conclusion, the authors state: “The revised rate of reshoring plus FDI job announcements in 2019 was up about 2000% from 2010. The 600,000+ jobs brought back represent about 5% of U.S. manufacturing employment. The acceleration of jobs coming back combined with the decline in the rate of offshoring has resulted in a plateauing of the goods trade deficit at about $800 billion/year. The COVID crisis has revealed the U.S.’s over-dependence on imports.
This data should motivate companies to further reevaluate their sourcing and siting decisions by considering all of the cost, risk and strategic impacts flowing from those decisions. Policy makers can use the continued reshoring successes as proof that it is feasible to bring millions of jobs back.”
Government policies do have an influence on reshoring and FDI. If the next administration reverses the corporate tax and regulatory cuts, it could have an adverse effect on the reshoring trend.
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