US Manufacturing Jobs “Relocated” Due to Supply Chain Problems and Rising Costs in China
The supply chain crisis and pandemic have reinforced an economic maxim that executives at manufacturer Acme Alliance in Northbrook, Illinois, have emphasized for two decades: Keep your operations and jobs close to your customers.
A manufacturer of custom finished aluminum die-cast components for automobiles, heavy trucks and farm machinery, Acme officials estimate that 20% of their sales in the United States over the past five years have brought jobs back to the United States. United States.
“We keep telling our customers that the best strategy is to source locally,” Acme President Mauri Zaccarelli Mendes said in an interview. “You reduce your stock level, your quality is better, you save a lot of travel costs. So ultimately after all this problem with COVID and now these logistics issues that we’ve seen all over the world, they realize that it makes a lot of sense. “
Other companies are increasingly following Acme’s lead. The rising cost of doing business in China is also making it more attractive to return to jobs in the United States, analysts said.
The “relocation” of jobs to the United States from overseas is expected to reach over 200,000 this year, more than the previous peak of 180,000 jobs in 2017, when regulatory relief and corporate tax cuts administration were just starting to take effect, according to Harry Moser, president of the Reshoring Initiative, which tracks jobs returning to the United States
“The pandemic and resulting supply chain disruptions have made businesses more aware that being dependent on something that comes from across the world, has to go through two ports on the other side. from the ocean and comes from a potential adversary, China in this case, that there is more risk than they thought, ”Moser said.
The development has benefited states such as Ohio, which promotes itself as “an open and secure supply chain location.” At least 37 companies this year announced the relocation of a total of more than 12,000 jobs to Ohio, which offers a variety of grants to encourage employers to relocate there.
Foreign direct investment in the U.S. manufacturing sector hit a new record high of $ 1.88 trillion in 2020, according to the National Association of Manufacturers. In 2005, the level was $ 499.9 billion. NAM said it expects continued growth in the industry, in part due to “more companies re-evaluating their supply chains amid the current disruptions.”
Some of the largest companies that have returned to jobs in the United States over the past decade include General Motors, Boeing, Toyota, Mahindra, Volkswagen, Volvo, Caterpillar, and Intel Corp.
Semiconductor chip shortage plays a leading role in increasing foreign direct investment in the United States
Samsung Electronics Co. last month announced plans to build a $ 17 billion chip manufacturing plant in Taylor, Texas, which is expected to create around 1,800 jobs. The city has offered significant tax breaks to the South Korean giant.
Taiwan Semiconductor Manufacturing Co. plans to spend $ 100 billion over the next three years to build new chip factories, just like Intel Corp., with proposals for new factories in the United States and Europe.
The Biden administration is pushing for increased U.S. production of electric vehicle semiconductors and batteries, and lawmakers are asking for $ 52 billion in industrial subsidies for new semiconductor manufacturing plants.
The governors of Michigan, Illinois, Wisconsin, North Carolina, Kentucky, Pennsylvania, Kansas and California urged House leaders last month to pass the CHIPS Act, which has been approved by the Senate.
The United States accounted for just 12% of global semiconductor production capacity in 2020, up from 37% in 1990, according to the Semiconductor Industry Association.
While the relative cost of wages and benefits in the United States has historically prompted companies to outsource jobs, wages in China have increased by 10 to 15 percent per year over the past 20 years, Moser said. . In recent years, more and more companies are considering a “total cost of ownership” model that takes into account trade disputes, increasing US competitiveness and rising Chinese wages, he said. he declares.
“Chinese labor costs to make a typical coin expressed in dollars are now five times higher than 20 years ago, and the United States has remained almost constant,” he said.
Manufacturer Victaulic, which makes pipe assembly systems, in 2017 announced plans to spend tens of millions of dollars to expand its factories in Pennsylvania’s Lehigh Valley. Company officials said one of the considerations was that parts from China could take six weeks to arrive in the United States, while fulfillment of orders for its U.S. operations could instead be completed within days.
Acme Alliance also has factories in China and Brazil, but is focused on sourcing its customers from the source of manufacturing closest to them.
“When you see supply chains stretching across the world and you have some kind of interference, you see what the issues are,” said Matt Thavis, director of value chain development at Acme. “So our model is that we are a global company. We strongly believe in regional sourcing. We do not store any parts here [in the U.S.] which are made in china.
Despite the company’s success, Mendes said Acme is also struggling with late orders due to supply chain issues with suppliers who “don’t have enough components to complete the product.” . He also said the company has been unable to fill some positions due to the labor shortage in the United States.
“We are still not in a position to hire more people. It’s quite difficult, ”Mendes said. “Even though it’s a little above the average salary, we are not able to attract people. “
Mr Thavis said Acme did not base its decisions on incentives or other policies emanating from Washington.
“We don’t rely on politics to do business,” he said. “We just think our model makes sense. It’s just the kind of decree that if you’re going to assemble and sell goods in a region, it makes sense to source components from that region.
Progress in bringing jobs back to the United States has not completely reversed a trend of offshoring that has marked decades. A recent survey by the US Chamber of Commerce in Shanghai found that 71% of US manufacturers had no plans to move production out of China, while only 4% said they would transfer some to the states. -United, Barrons reported last year.
And U.S. companies have directly invested around $ 260 billion in Chinese operations since the early 1990s, according to a Rhodium Group analysis.
Yet Mr Moser says there has been a “tangible change in corporate decision-making”. He said the shortage of personal protective equipment (PPE) in the United States at the start of the pandemic in 2020 accelerated a relocation process that had already started.
“Now that makes businesses more susceptible to all of these other related disruption issues,” he said.