Reshoring: Why America Needs to Rethink Its Imports
News Substituting domestic production for imports is the most direct way to increase U.S. manufacturing while recruiting the future skilled workforce.
The key to increasing investment in the skilled workforce is increasing industrial output. This increase cannot be achieved via consumer spending, since the personal savings rate is only about 5 percent, half of the rate in the ‘60s and ‘70s. We cannot increase government spending since the debt is already far too high.
The only practical solution is the elimination of the U.S. goods trade deficit, approximately $727 billion in 2014. Since other countries are fighting to protect their markets, and U.S. manufactured products are about 30 percent less competitive offshore than here, exporting more is not a viable solution. The best choice is to import less by substituting domestic production for imports, i.e. to reshore.
As industrial output rises, the bottleneck will be recruiting the skilled workforce required to operate, program and maintain increasingly complex production systems. Fortunately, well-publicized reshoring success will improve the quality and quantity of recruits who no longer fear training for a dying industry.
The goods trade deficit is dominated by consumer goods, with both the largest deficit and the largest ratio of imports to exports, thus the greatest imbalance and possibility to reduce imports.
Paving the way
There are initial signs of reshoring success in this category, with over 100 known cases of reshoring or foreign direct investment. Walmart is the driving force via its commitment to increase purchases of Made in USA products by $50 billion per year by January 2023. We forecast a resulting increase of about 300,000 U.S. manufacturing jobs and have already identified 43 cases and over 4,500 jobs by companies participating in the Walmart program.
About 75 percent of what is now offshored will require a combination of: a lower USD; higher Chinese Yuan; lower U.S. corporate tax rates and a larger, better trained skilled workforce. The other 25 percent, approximately 1 million manufacturing jobs, could be brought back in the next few years. Specifically, companies need to:
Understand that world economics have changed in favor of the U.S. Chinese wages are up; U.S. energy costs are down; consumers increasingly demand faster response, customized products and Made in USA.
Select and evaluate products for reshoring. Popular tools for reevaluation include the Cost Differential Frontier from the University of Lausanne and our Total Cost of Ownership Estimator™. Both are free online.
Increase the competitiveness of U.S. factories (Automation, lean manufacturing, etc.).
Find retailers that are motivated to source and sell Made in USA products.
The Reshoring Initiative, a not-for-profit committed to bringing manufacturing jobs back to the U.S., has recently launched Resources for Retail Suppliers to address these issues and more. The new program provides direct, personal access to thirty-five manufacturing trade associations, companies, banks, U.S. Commerce Department offices and other groups. Each group has assigned dedicated resources to help companies develop and implement plans to produce or source more goods domestically. We urge manufacturers to use the resources, relevant groups to volunteer to be listed and retailers to provide a contact point to be displayed along with the Walmart JUMP site.
A visible, consistent effort to source more consumer goods domestically will drive skilled workforce investment, resulting in further increases in competitiveness. We call on retailers and manufacturers to reevaluate their sourcing and act now.