Between PRC spying, increasingly strategic IT, and costs rising towards levels that make US manufacturing competitive, more US manufacturers should consider onshore building of computers.
Motorola recently announced phones that will be American-made. This reflects the erosion of overseas advantages that is reversing off-shoring. Apple, the poster child for Chinese manufacturing, is bringing back part of its product line to the US.
A few years back, the logistics model swung away from US manufacturing to Chinese production. PRC wages were low, the renminbi was held at an artificial value by their government, and companies saw an opportunity to access the largest population of potential buyers.
We know the result. Computers and phones are mostly made in China these days. Never mind harsh labor conditions reminiscent of the 1930s, or pollution worse than any smog Dickens described, the price is right. But only just.
Now things are changing. First, PRC wages have quadrupled over the last decade. Second, under strong pressure, the PRC has allowed some float in its currency relative to the dollar, which also increases costs.
Other factors include higher unemployment in the US, which made workers cheaper, and energy prices dropping as the US becomes a net exporter of oil/gas. US gas is 75 percent of the price in China, and this gap is increasing. Additionally, China could face serious labor shortages in the next decade. Those expected sales to China haven't surfaced, with a huge US trade deficit.
The PRC is relatively friendly, but the US fought it in Korea and Vietnam. There's serious tension now with Japan and Korea in the South China Sea. China is asserting its place in the world, and so the US has to consider protecting its sourcing for strategic electronics, such as servers, processors, and DRAM.
We are at a tipping point on the question of onshoring in electronics. The financial case is strengthening, but not yet strong. The logistics case is perhaps stronger, since inventory pipelines would drop dramatically with onshore assembly, but it isn't yet compelling, despite Apple's recent supply problems.
This is mainly an issue of US policy. Washington has some cards it can play. The indisputable fact of intense Chinese espionage may be sufficient. The US already placed a ban on PRC systems gear in federal bids, but this was aimed primarily at Huawei and ZTE.
We could see an offer to companies like Apple to allow tax-free repatriation of hidden profits, provided a large portion is used for building out, and using, onshore manufacturing. Extending onshoring further down the supply chain will take longer. For example, China makes many of the surface mount components in the world, and on-shoring might run into NIMBY issues from perceived pollution issues.
Some creativity is needed. The largest IT purchasers are Google, Amazon, and Microsoft. Their model is to buy from boutique assembly operations, using Chinese motherboards and cabinet metal.
Motherboard makers use Intel reference designs, so engineering a US startup is relatively simple. Economics of the metal-fab process come mainly from scale and the use of lower-quality steel. With an offset from reduced transportation, reduced pipelines, and robotics, US manufacture is attractive.
The traditional US system makers could also see an incentive to repatriate. For instance, a requirement for “American-made” labels on military and federal computing would cover 15 percent of the total IT industry, while a logical extension (for security reasons) to banking, healthcare, and utilities would further increase US-built volumes.
It's up to Washington and industry to decide whether the US needs to own its IT destiny or not, and to decide soon.