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Is a Return to ‘Made-in-the-USA’ Possible?

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.

29 comments on “Is a Return to ‘Made-in-the-USA’ Possible?

  1. Adeniji Kayode
    April 29, 2011

    I must confess that this is a good post Eric.You have said it all

    1.USA has all it takes to become makers

    2.That all it takes is the political will and intestinal fortitude to champion it and establish the conditions that encourage it.

    I must also say that you made a good analysis which gave a good picture of what you are driving at.

    the irony of it is that most of the developing countries where heavy importation of electronics and other consumer goods take place don,t even know that USA is not even manufacturing those goods and one  of the major reasons why they buy and trust so much in these goods is because  they are thought to come from the US and so quality and durability is not a question.

    Now what happens if US now move in to manufacturing?

  2. Backorder
    April 29, 2011

    Excellent article, Eric.

    Adeniji, its true what you mention about the perception that US companies make quality products and its ironical that these are no more being manufactured in the US. This is true of not only the semi conductor but most industries with OEMs based in US and manufacutring in China!

  3. Ashu001
    April 29, 2011

    Eric,

    I don't know if you are following the Currency Markets but the US Dollar hit fresh all time lows against the Chinese Yuan,Swiss Franc,Australian Dollar and the Euro recently.

    All thanks to Ben Bernanke's QE2 policy to explicitly destroy the value of the US Dollar.And its working.Will this be good enough to bring back all the manufacturing that has left Amercia for Asia??? I am not so sure.But its still worth a shot.Atleast the Govt. can say they are lending a helping hand to manufacturers(even if it means destroying the savings of the consuming class who earn in US dollars and have to buy Foriegn products-Do you see many Made in USA Tags nowadays???)

    Great article anyways!!

    Regards

    Ashish.

  4. Taimoor Zubar
    April 29, 2011

    Besides the cheap labor, there are lots of other factors such as cheap electricity, cheap rents, lack of copyrights and labor laws etc that have China so successful in manufacturing. I think the US government will have to take things in their own hands and encourage the manufacturers to start producing. In the initial period the costs might be high, but in the long run I believe they will come down.

  5. Mr. Roques
    April 29, 2011

    Interesting! Of all those factors you mentioned, which is the one that is really keeping companies from bringing their businesses from China? From what you mentioned, it would be the electronics components supply but you can always ship that. 

  6. Ms. Daisy
    April 29, 2011

    Its a hopeful question. but with the economy of the country at this time and political wranglings? I don't believe this will happen anytime soon.

  7. Backorder
    April 30, 2011

    Quantitative Easing and its impact on the currency valuations is a good idea, but is it enough to lure companies into bringing back the manufacturing to the states? I doubt it. The currency advantage, that helped China build up the manufacturing infrastructure and which brought the industry to its shores, is difficult to be replicated elsewhere.

  8. jbond
    April 30, 2011

    This is an excellent article with many valid points. The biggest problem I see is the skilled labor workforce. Yes, we have plenty of skilled workers able to build anything. The problem is many of these workers are still demanding a premium rate. Even though we have high unemployment with many employable workers, many that got laid off from high paying manufacturing jobs have a hard time accepting new jobs at more reasonable wages that allow companies to hire workers and stay in business. Whether it's the unions or the pride of workers, until our workforce stops thinking they need to be able to afford anything they want, many companies are going to have a hard time brining manufacturing back to the U.S.

  9. Ashu001
    April 30, 2011

    Backorder,

    You answered the basic question yourself here,

    “The currency advantage, that helped China build up the manufacturing infrastructure and which brought the industry to its shores, is difficult to be replicated elsewhere.”

    If the US Dollar becomes so cheap (vs the EURO,The Yen and the Chinese Yuan) so as to make American products extremely attractive all over the world;then we can see the possibility of a resurgence in US Manufacturing just like in China. My bet is it can be replicated;if similar environment is created.

    Regards

    Ashish.

  10. Backorder
    April 30, 2011

    Ashish,

    My point being, “..is difficult to be replicated elsewhere.”

    The move into China was not a sudden one but a result of long thought out strategies in the silicon valley offices. Of course, if US persists and manages to balance the currency, there is no reason why manufacturing in the country cant be a good bet. But, do I really see the political will and policy to make it happen? Or how strong a pull would that be vis-a-vis the eastern players who have tasted the economic success and would be very eager to keep at it? It seems such an uphill task here onwards for the US, I bet it cant be done in the near future. 

  11. mario8a
    April 30, 2011

    Hello

    I see this article very interesting, however I think the “checks” listed in the article sohlyd be wieghted base on priority, w/o the Electronic component Supply is very hard to think about manufacturing, talking about Low-Cost labor force, will US have a chance against India, China, Mexico & Brazil? 

    Regards

  12. SP
    April 30, 2011

    I would say its toolate now. Walmarts and other big retail shops are full of products made outside USA and people buy it.

  13. eemom
    May 1, 2011

    Your article confirms the many posts I have written saying that we've got to bring component supply back to the US and the government has to get involved to make it feasible for the companies that attempt it.

    Incentives should be given to companies that make more in the US than simply farm it out.  Everyone is worried about the bottom line but if companies are given a financial reason to employ in the US and make products in the US, perhaps we can reverse the trend of “takers not makers”.  The government needs to work with the larger cash rich companies as well as medium and small businesses who are trying to compete.

     

  14. Eldredge
    May 1, 2011

    It would be great to see a domestic increase in electronics manufacturing, but there are many other industries as well that import from China. My family looks for proeducts that are made inthe US, but they are not always easy (sometimes impossible) to find.

  15. Ariella
    May 1, 2011

    Yes, even companies that brand themselves as American rely on foreign production.  For example, LL Bean, which stresses its Maine presence now sells clothes that are mostly sewn in Asia rather than in the US. Cars  for sale now bear stickers  that identified the percentages of foreign and domestic parts.  This is needed for people who want a clear picture on what constitutes (in the precise sense of that term) an “American” car as required by the American Automobile Labeling Act. Most prodcuts do not require similar labeling to clearly identify the various components of its origins. 

  16. Adeniji Kayode
    May 2, 2011

    @sp:

    No, it not too late.The consumers buy what you presented to them because yours is not in market yet.

    The earlier the better because it will also have a positive result on the economy

  17. Eldredge
    May 2, 2011

    That brings up a god point. Even when products are identified as “Made in USA”, exactly what does that mean? It is important for consumers to know if they want to support American manufacturing. It seems like companies can claim American made products when they have a lot less than 50% material or labor content. Does anyone have more insight into the current regulations?

  18. Ariella
    May 2, 2011

    U.S. content must be disclosed on automobiles and textile, wool, and fur products. There’s no law that requires most other products sold in the U.S. to be marked or labeled Made in USA or have any other disclosure about their amount of U.S. content. However, manufacturers and marketers who choose to make claims about the amount of U.S. content in their products must comply with the FTC’s Made in USA policy.

    Note that only applies to those 4 categories.

    The Commission does not pre-approve advertising or labeling claims. A company doesn’t need approval from the Commission before making a Made in USA claim. As with most other advertising claims, a manufacturer or marketer may make any claim as long as it is truthful and substantiated.

    from  http://business.ftc.gov/documents/bus03-complying-made-usa-standard

  19. t.alex
    May 2, 2011

    Sometime ago, those products labelled “Made in China” did have bad reputation of quality. However, the situation is much more improved nowadays. Given the same product, one with “Made in China” and one with “Made in USA”, what is the factor that make consumers to make a choice?

  20. Eldredge
    May 2, 2011

    I can't speak for anyone else, however for me, it is in part the fact that the product was made is the US….although I'd like to know that means the US content is more than shipping materials here, adding a piece or ornamentation, and placing it on the shelf. For me, there are still quality issues as well is some product sectors. I still see inferior workmanship and materials in hand tools, and I avoid made in China tools.

  21. Adeniji Kayode
    May 3, 2011

    @ t.alex

    what make consumers to make a choice is the name that has been made in time past, quality and durability of the goods from whereever its coming from.

    In most of the developint countries, anything made- in – China is always considered to be less inferior and they are much more cheaper. While people buy them, they buy having in mind that such goods may not last long and in most cases, they don,t last.

    They generally believe that any goods from any where apart from China will definately last longer which in few cases its just a theory but in most cases, its true.

  22. frobertazzi
    May 4, 2011

    “Adding More Value-in the USA” is probably possible. Most laptops built in China have an INTEL or AMD processor along with MS software. Another way to look at it is Toyotas built here have a good deal of value add in Japan. No getting away from a WW supply chain. Hopefully we can add more value than just sales, marketing and distribution.

  23. Plot435
    May 4, 2011

    How S..L..O..W.. can we be?

    The only reason we have this problem is that Jack Welch, and his private/government associates, used “off shoring” to get filthy rich without any regard for the impact on the USA.

    How could it NOT work?  Cheap 3rd world labor and no taxes that US based manufacturers had to bear to support the bloated City/County/State/Federal government we have.

    Well, Jack W. & associates are now filthy rich, so why not simply solve the problem.

    Put a 25 to 45% Import Tax on this cheap China stuff and we will “rediscover” US manufacturing.  Plus, in the short term, there will be funds to support our bloated  City/County/State/Federal government!

    Win-Win, as they say.

    GE

  24. t.alex
    May 7, 2011

    Eldredge, 

    As a matter of fact what you said is quite true. Most products with “Made in China” still have inferior quality. 

  25. Ashu001
    May 10, 2011

    Eric,

    In keeping with the spirit of your Blog,BCG released a new report,which says that as Wages start to rise and rise sharply YoY in China;most manufacturing(of products which are destined for America) will move back to Low cost States in the US.

    Fascinating article.A must read!!!

    The most important factor is High Quality skilled labor(which is easily available even in most Low cost American States).

    http://www.bcg.com/media/PressReleaseDetails.aspx?id=tcm:12-75973

    There are two more crticial elements not discussed effectively.

    1)Crude Oil prices-If they continue to keep rising then Transportation of products over long distances becomes prohibitively expensive.

    and

    2)America has a Very well developed Consumer Market(including Consumer Finance).Something which China will need atleast a decade or more to develop.

    Regards

    Ashish.

  26. Ashu001
    May 10, 2011

    Alex,

    These are just the sort of Complacent comments which got the Big 3 auto manufacturers in trouble (with the Japanese eating their lunch).

    Give it some time and the same thing will play out once again with the Chinese.

    They are learning fast,real fast.

    And the quality of Products is improving well too.

    However,Customer Service(is one area where they still have a lot to learn).

    You could say that this is definitely an advantage(if they maintain it) for American/Western manufacturers.

    Regards

    Ashish.

  27. t.alex
    May 14, 2011

    tech4people,

    Would you elaborate more on “customer service” as an advantage for Western manufacturers? You mean this is not outsourced?

  28. Ashu001
    May 15, 2011

    Alex,

    Even if it is outsourced,the jobs will have to be retained locally(within America).So in a way the product still retains the Made in USA tag.

    regards

    Ashish.

  29. Mr. Roques
    June 15, 2011

    Well, you also have to look at the conditions of the outsourcing partner (the company itself and the country, area it's in). Is it much better? I don't think so.

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