Reshoring
There has been a lot of talk lately about the resurgence of American manufacturing, how companies are bringing their factories back from overseas and making things domestically, and that manufacturing is leading the economic recovery from the Meltdown of 2008. Any good news about manufacturing is entirely good news, but these assertions are only partially accurate, and perhaps not very meaningful at all.
The broad economic indicators do show that manufacturing is “leading” the recovery, such as it is, but the context is important: there is not much of a recovery at all, so being in front is faint praise. Moreover, the manufacturing sector was the hardest hit during the recession, so its recovery is from a trough far deeper than the rest of the economy’s. Finally, the job growth in manufacturing is still tepid.
It is a mistake to conclude from a few new plants in this country that there is now an “reshoring boom,” as if the decimation endured by America’s manufacturers has ended for good, we can all wake up now the nightmare is over. Every new plant is heralded as a sign that the tables have turned; Apple’s announcement late last year that it is bringing some assembly back to the U.S. was written about in the major newspapers as if electronics manufacturing in Asia had ceased. The Atlantic ran a cover story titled “Comeback: Why the Future of Industry is in America” that described a major investment by General Electric in restoring manufacturing of some appliance parts to Louisville, Kentucky. It barely mentioned the fact that even after $800 million of investment there, the employment level at a plant where 23,000 people once worked is still just north of 4,000.
In truth the manufacturing activity outside of the U.S. continues to grow, and even at the height of the “outsourcing” wave there were new plants being built right here at home. Manufacturers constantly evaluate costs of production, quality, availability of labor, supply chain, logistics, market responsiveness, customer needs, and lead times to determine a global manufacturing plan. It may be that manufacturers underestimated some costs of moving overseas, and that domestic manufacturing can sometimes make more sense. Nobody gets it right every time. There is one overriding factor, however, that will impede any large scale “reshoring” in the future: the developing world is growing at a demonstrably faster pace than the United States, and that gap will likely continue. As American manufacturers seek to be close to the markets they serve for numerous efficiency reasons, they will continue to locate plants overseas, or they will not be viable global competitors.
So let us applaud the baby steps we see in the resurgence of American manufacturing activity, but at the same time not be deluded into thinking the problems are over. Without structural reform to our public policies as they affect the manufacturing sector, there is no reason to be optimistic for long.
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