Rebuilding and Reshoring: What the U.S. Government Must Do
Category: Supply Chain • Mar 12, 2021
By Harry Moser, Founder/President, Reshoring Initiative®The United States needs an Industrial Policy instead of what has been, in effect, a decades long de-industrialization policy. After WWII, the United States sacrificed its manufacturing economy to help the world recover from the war and later to help low-income nations achieve democracy and middle-class status through preferred terms on exports to the United States. Unlike competitor countries, we failed to establish an industrial policy.
For decades, the United States:
- emphasized liberal arts university degrees over apprenticeships;
- allowed the USD to be consistently overvalued by 20+%;
- had the highest corporate tax rate and the lowest duty rates;
- allowed our legal liability costs as a percentage of GDP to reach 2.6X the Eurozone’s[i]
- awarded the majority of engineering, math and computer science PhDs to temporary visa holders[ii];
- and do not have a VAT or BAT (Border Adjustment Tax).
As a result, the United States is too often not price competitive even in its home market. The United States has experienced increasing non-petroleum goods trade deficits since 1979, recently averaging about $800 billion per year. To reverse these trends, the country needs to acknowledge that a revitalized, price competitive, manufacturing sector is its priority, necessary to accomplish other key objectives.
President Biden’s Manufacturing Program
President Biden’s Build Back Better Recovery Plan has a lot of positive elements. The goal is correct: Add five million manufacturing jobs. That would balance the trade deficit and has been our goal for years. The Buy American Act will reshore some government spending. Made-in-America tax credits will motivate some companies to reshore. Offshoring tax penalties will reduce the amount of offshoring. The $50 billion for training programs will address one of our most important and intractable problems, skilled workforce quantity and quality. Made-in-America product labeling will crack down on false claims, raising the value of a Made-in-America label. These steps are all important and adding a strong emphasis on improving price competitiveness would make President Biden’s five million-job goal achievable.
The United States should launch an aggressive industrialization immediately. The United States is now seventh in per capita GDP, maybe closer to 13th if adjusted for the 20 to 30 percent overvalued USD[iii]. The goal should be to make the United States cost competitive enough to balance the goods trade deficit in 10 years.
Skills – close the gap
High skill levels are key to Germany and Switzerland being competitive despite high wages. The United States should shift resources to apprenticeship programs and engineering degrees. The United States steers students to liberal arts colleges while facing severe shortages of apprentices and engineers. More education and training loans for apprentices and engineers are critical.
The U.S. Departments of Labor and Education can help. Education successfully promotes university degrees of any subject while Labor puts more emphasis on university degrees than on apprenticeships. We have all seen the articles and news reports about “College degree pays off with $1 million more lifetime income than a high school degree.” The source government data is accurate but incomplete.
In 2012, I was fortunate to be asked to present to the Department of Labor (DOL) about how to get the U.S. workforce ready for reshoring. In the Labor Secretary’s conference room, I asserted that DOL was contributing to the problem, and had to become the solution. For example, instead of showing income by degree level under the heading “Education Pays,” why not include training as in “Education and Training Pay”? The chart should include the income of apprentice graduates. That meeting led to a change on the website in line with my recommendations and started a survey of apprentice graduate salaries. Government websites are still cluttered with similar degree focused messaging, and I continue to engage to make changes. My offer to audit entire agency and department websites has not yet been accepted but still stands.
The Commerce Department’s SelectUSA and Investment Advisory Council are refocusing to treat reshoring with the same priority as FDI (foreign direct investment). Many MEPs (Manufacturing Extension Partnerships) are pursuing reshoring, including supply chain optimization. MEPs in Illinois, New York State, Ohio and Rhode Island are working effectively with the Reshoring Initiative to implement our Import Substitution Program. See “Rebuilding and Reshoring: Four Actions Communities and States Can Take” and our upcoming article “Rebuilding and Reshoring: Reshoring Initiative Mission & Resources.” (article coming soon) For more details on actual results see Reshoring & Tariffs. The government has been especially successful in reshoring PPE and pharmaceuticals, driven by COVID-19.
Increase U.S. competitiveness
Level the playing field so that all or most products can be made competitively here for the home market. At the same time, target products that are “essential,” either on their own or as components for other key products. Put as much emphasis on importing less, reshoring, as on exporting more. Reshoring is easier. Imagine exporting average castings or machined parts to China.
For the United States to become globally competitive, we must take steps to level the playing field. The Reshoring Initiative suggests creating a vetted national policy tool to select the optimal actions that will bring back the desired number of manufacturing jobs with the least collateral damage, e.g. inflation and retaliation by other countries. These actions will also keep jobs from leaving and will increase exports.
The United States must overcome the wide belief that it cannot and will never again produce many of the products that have been lost to offshoring. Seeing a viable path to adding millions of advanced manufacturing jobs is the first step.
We should quantify the competitiveness gap with a unified, quantified, broadly supported proposal for the nation. The Reshoring Initiative’s Competitiveness Toolkit is a good start on the reshoring and job impact of most of these actions.
Figure 1 shows the reduction in the trade deficit and the increase in manufacturing jobs as a function of the percentage reduction in U.S. price vs. imports.
Figure 2 is a list of policies and how much each would improve U.S. price competitiveness. The listed policies collectively could reduce U.S. prices vs. imports by 48%. Per Figure 1, we only need 30% price reduction to bring back 5 million jobs. Keeping the current 21% corporate tax rate and immediate expensing are timely, important issues for competitiveness.
Make reshoring and preventing offshoring a priority.
In addition to the macro policies in Figure 2, much can be done at the detail level:
- Make reshoring as important as FDI (foreign direct investment) for Select USA.
- The Labor and Commerce Departments’ Trade Adjustment Assistance (TAA) programs help workers and companies who have been hurt by imports. Broaden TAA’s mandate to help the companies proactively use TCO (Total Cost of Ownership) for sourcing and selling before the jobs are lost. By switching from deciding based on manufacturing cost or FOB price to TCO, companies will offshore less and lose fewer jobs to imports. See our upcoming articles “Rebuilding and Reshoring: TCO, A Deeper Dive (article coming soon).”
- Make reshoring a preference under the EB-5 Immigration Investor Program. Since 2008, the EB-5 Program has generated over $27.6 billion in capital investment. However, only 1.6 percent of the investment money goes into manufacturing.[iv] The biggest share goes into housing, restaurants, hotels, and other non-tradable services that are already in good supply. The program would do much more for the U.S. economy if the qualifying investments were limited, or at least prioritized, to manufacturing, especially to filling supply chain gaps.
Balancing the trade deficit will achieve many of the priorities of any administration, especially the Biden administration. Such benefits include income equality, employment, smaller budget deficits or more funds to spend, reduced environmental impact, restored strength vs. China, and defense materiel availability. The Biden administration presents a new opportunity to drive reshoring. I encourage any reader with connections to forward this article and introduce the Reshoring Initiative.
Let’s work together to establish a long-term pro-active national Industrial Policy that will increase U.S. competitiveness and bring back millions of jobs. For help or to help, contact me at email@example.com.
[iv] Hodges, Hart et al. “Quantitative Assessment of the EB-5 Program.” IIUSA, https://iiusa.org/wp-content/uploads/2018/03/EB-5-Economic-Impact-Report-2014-2015-FINAL.pdf .