Further Review of Manufacturing Supply Chains

Further Review of Manufacturing Supply Chains
Assembly Magazine October 2021
By Harry Moser

John writes, “Last year’s shortages…opened a lot of eyes in board rooms and in Washington.” Indeed, they did. Reshoring by U.S. companies increased 167 percent in 2020 to set an all-time record of 109,000 jobs brought back to the U.S. From March to December 2020, about 60 percent of reshoring cases cited COVID as the primary reason. About half of the reshoring cases were directly rated to making personal protective equipment and other medical products. The rest were motivated to avoid the disruptions experienced by the medical industry.

John also quoted President Biden: “This is about making sure the United States can meet every challenge we face in the new era.” The Biden programs will help, but are really just tourniquets in response to 50 years of neglect of U.S. manufacturing. They do not deal with the root cause of our lack of self-sufficiency: uncompetitive manufacturing cost.

U.S. manufacturing cost is too often 40 percent higher than low-wage countries like China and 15 to 20 percent above other developed countries like Japan and Germany. The necessary solution is a combination of massive skilled workforce training like Germany’s, 20 to 30 percent lower USD, not raising the corporate tax rate, and creating a value-added tax. If we take those actions, companies will respond with innovation, hiring and investment.

John also quotes John Mitchell, president and CEO of IPC, a trade group representing U.S. electronics assemblers. “The U.S. printed circuit board industry, which once accounted for more than 30 percent of global production, today accounts for less than 5 percent. Only four of the top 20 electronics manufacturing services companies are based in the United States.”

If we subsidize chip foundries and dramatically increase our chip production, but do not increase our production of computers, auto infotainment systems, cell phones and other electronics, we will go from being dependent on China and Taiwan for chips to being dependent on them for sales of our excess supply of chips. We need a rising tide that lifts all or most industries.

Finally, John writes, “Beijing’s dominance of global supply chains for raw materials and critical products like medical masks has prompted concerns that its authoritarian government could cut off the United States, causing even bigger economic disruptions.”

There is increased discussion about the possibility of China “decoupling” from the U.S., announcing an embargo on all shipments. Factors driving China include Taiwan, the Uighurs, Hong Kong, the South China Sea, sanctions and tariffs. A good friend and noted China expert Eamon McKinney is convinced that China will decouple.

Ten or 20 years ago, China needed the U.S. more than vice versa. China has achieved unprecedented growth based largely on selling to the U.S. We are its No. 1 destination for exports, three times the No. 2 country, excluding Hong Kong. However, the Chinese middle class has grown enough and saves so much that China could divert production capacity to meeting domestic demand instead of exporting to the U.S. If that happened, the U.S. would be crippled by shortages across industries and product lines. Factories in the U.S. cannot keep up with current demand, despite the current surge in imports from China. U.S. imported $435 billion from China in 2020. Producing those goods here would require an increase in manufacturing employment of 3 million people. We already have about 800,000 unfilled manufacturing jobs.

My conclusion is that Biden’s piecemeal actions to boost the domestic supply chain of essential products are necessary, but not sufficient. The root cause is our lack of competitiveness. Biden must put equal effort on attacking the root cause.

The Reshoring Initiative’s tools and data can help OEMs make better sourcing decisions and help contract manufacturers sell against imports.