A little noticed online news story posted on Evertiq.com on April 1 this year, announced that the European Commission had passed a bill that forbids member states from importing electronics goods from Asia. This meant that all electronics sold within the EU now also had to be mostly assembled (51 percent) in the EU. This was, of course, an April Fool's joke, but it did generate either hope or concern in those who read it. Hope for companies not in Asia; concern for those who are.
That same day, The Wall Street Journal ran an article entitled "We've Become a Nation of Takers, Not Makers." This piece pointed out that more Americans now work for the government than in manufacturing, farming, fishing, forestry, mining, and utilities combined. If, the author contended, we are to retool our economy to "win the future" as President Obama says, the only way to do that is to build an economy that makes things.
These two articles got us wondering what it would take for electronics manufacturing to again grow in the US. Common wisdom currently holds that high volume manufacturing of consumer goods will remain in China and that only medium- and low-volume manufacturing of more complex products will migrate back within the regions into which they are sold.
While this might hold true for the foreseeable future, what would happen if an environmental or geopolitical catastrophe -- think of the recent tsunami in Japan and unrest in North Africa and the Middle East -- were to hit China? Would this give a boost to the US manufacturing base, and would the US be in a position to respond? Let’s consider the necessary ingredients for a return to manufacturing in the US.
- OEMs: Got lots of them… check.
- Skilled labor force: Got that too... check.
- Good infrastructure: Somewhat dated, but better than many other places in the world… check.
- Manufacturing equipment: Plenty of that lying around in the world… check.
- Proximity to US consumer end markets: Can't get much closer… check.
- Stable sources of water and power: Oh yeah… check.
- Low-cost labor force: Not really, but if we can leverage Mexico and less expensive regions within the US we could pull it off, and besides, it isn't that cheap in China anymore either.
- Electronics component supply base: Houston, we have a problem...
China controls over 80 percent of the global supply chain, so manufacturers in the US would be mostly dependent on them for parts. However, federal and state governments, if they wished to support development of electronics manufacturing, could provide tax incentives for companies that could build such components and begin to reverse the trend.
Analysis undertaken by Charlie Barnhart & Associates has been pointing to a regional manufacturing approach to reduce total costs, including the OEM internal spend for managing cross-hemispheric supply solutions, which add risk and cost, especially for volumes under $50 million. Recent case studies demonstrate these realities in stark terms.
Ultimately, what is needed for manufacturing to return to the US is the political will and intestinal fortitude to champion it and establish the conditions that encourage it. There appears to be lots of political will these days expended on issues that will not benefit this country as much as the return of a manufacturing base. Will someone or some party decide to champion this cause with a realistic blueprint that voters can understand and support? And hold those they elect accountable for implementation?
With the US Presidential election season starting up again there is sure to be lots of rhetoric about re-establishing the US manufacturing sector, as has occurred in previous election cycles. Hopefully, this time around it will not be mere lip-service to appeal to voters that is then quickly forgotten once the election season ends. Donald Trump has stated that if elected president he would push for a 25 percent tariff on all products imported from China. His rationale is that he is for free trade, which the current situation is not.
Instead of trying to simply get cheap products to fill the shelves for US consumers, why not push for jobs that allow those consumers better lives and help drive an economic recovery? The American spirit has always been one of makers not takers.