#292. Some manufacturing heads back to USA

Posted on | The Agurban

Some manufacturing heads back to USA

Faced with rising costs, General Electric is moving production of its new energy-efficient water heater halfway around the world. The country it’s leaving? China. The one it’s bringing 400 jobs and a newly renovated factory? The United States.
A small but growing band of U.S. manufacturers – including giants such as General Electric, NCR, and Caterpillar- are turning the seemingly inexorable off-shoring movement on its head, bringing some production to the U.S. from far-flung locations such as China. Others that were buying components overseas are switching to U.S. suppliers.

Ford Motor said Wednesday that it’s bringing nearly 2,000 jobs to its U.S. plants by 2012 from suppliers, including those in Japan, Mexico and India.

There are myriad reasons for the shifts, often called “onshoring” or “reshoring.” Chinese wages and shipping costs have risen sharply in the past few years while U.S. salaries have stayed flat, or in some cases, fallen in the recession. Meanwhile, U.S. manufacturers have been frustrated by the sometimes poor quality of goods made by foreign contractors, theft of their intellectual property and long product-delivery cycles that make them less responsive to customer demand.

Several cite the drawbacks of tying up valuable capital in huge overseas shipments, and want to bring assembly closer to engineers, suppliers and customers, concerns that mounted as makers slashed costs in the downturn. Others are simply weary of midnight phone calls – and multiple annual trips – to Asia.

To be sure, examples of companies moving production to the U.S. are dwarfed by the many more still shuttering U.S. plants and moving to China, India or elsewhere. No one tracks such data, but one glaring, if imprecise, barometer is the U.S. trade deficit, which hit an 18-month high of $42.3 billion in May.

Onshoring “is a trickle; it’s not a flood,” says Scott Paul, executive director of the Alliance for American Manufacturing, a trade group. “There’s still more going out than coming in.”

In a June survey by MFG.com, 21% of North American manufacturers said they’d brought production into, or closer to, the continent in the past three months, up from 12% in the first quarter; 38% planned to research such a move in the next three months. Meanwhile, many U.S. makers that were planning to move abroad are rethinking their strategies.

For decades, offshoring has dominated, driven by Chinese factory wages that were a tenth of U.S. pay. Imports make up about a third of all goods purchased in the USA, up from 10% in the early 1970s, according to the National Association of Manufacturers.

U.S. manufacturing employment, after peaking at 19.4 million in 1978, is 11.6 million, though automation also contributed to sizable job losses. More than 2 million factory jobs were cut in the recession alone. Yet, the U.S. still had 21% of global manufacturing in 2008, more than any other nation.

The tide may be easing, if not quite turning. Wages for Chinese factory workers, bolstered by recent strikes, have jumped 15% a year the past decade, but they’re still a fraction of U.S. pay. Shipping costs are up about 71% the past four years as a result of higher oil prices and cutbacks in ships and containers in the slump, says IHS Global Insight.

With the cost gap between the U.S. and other countries narrowing for other expenses, such as class-action lawsuits, making products in the USA is now about 22% higher than the average of nine of its largest trading partners, down from 32% in 2006.

Once again, we are encouraged by this onshoring trend. Activity in our key markets continues to be very busy. We are cautiously optimistic about our country’s manufacturing future.