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Supply Chain News: Manufacturing Still Matters, with Swirling Dynamics around Possible Reshoring

 

Should US Government Subsidize US Semiconductor Production?

 

 

April 13, 2021
SCDigest Editorial Staff

US manufacturing levels continue to trend slowly down, but various forces may actually turn that around.

Supply Chain Digest Says...

 

Foroohar cites a soon to be released study from the McKinsey Global Institute will find that 16 manufacturing sectors have high economic and strategic value.

 
 

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That according to writer Rana Foroohar of the UK’s Financial Times, writing weekend on this critical topic.

She says while manufacturing has fallen to just 11% of US GDP and only directly employs 8% of the country's workers, manufacturing receives 20% of US capital investment, accounts for 30% of productivity growth, and 60% of exports. That mean the stakes in advancing US production – or not – are high.

And manufacturing’s share of the economy in many other developed countries, such as Germany and Japan, is far higher than in the US.

Foroohar goes on a bit of a tangent – but an interesting one – in noting that Western companies such as Nike, H&M, and others are under scrutiny for use cotton produced in Xinjiang, China, suspected of being processed using forced Uyghur labor.

The Chinese do not like this scrutiny, and companies considering moving away from sourcing in that region risk a Chinese backlash, as China appears to have added the Uyghurs to the list of other “no-discussion” areas that includes Tibet, Taiwan and Tiananmen,” Foroohar notes.

But trends were already moving against apparel imports from China. The country had a 71% share of global apparel exports in 2005, a number that fell to 29% by 2018.

Of course, most of that volume decline out of China was picked up by other low cost countries, such as Bangladesh, Vietnam and parts of Africa, not stoking US production.

But Foroohar says the powerful trend of brand companies pursuing direct-to-consumer strategies is fueling faster regional or even domestic apparel sourcing strategies, with technology that reduces costs and cycle times, shifting “the labor/transport cost/productivity arbitrage in favor of local production.”

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Foroohar cites a soon to be released study from the McKinsey Global Institute that will find that 16 manufacturing sectors have high economic and strategic value to the US, based on their contribution to national productivity and economic growth, job and income creation, innovation and national resilience.

While apparel is not on the list, semiconductors, medical devices, communications equipment, electronics, autos and auto parts, and precision tools are.

But semiconductors show the scope of the reshoring challenge. Foroohar cites McKinsey’s James Manyika as saying semiconductors can be producted far more cheaply in Asia than in the US. He adds that the only answered to that is for the US the government to subsidize investment via guaranteed federal procurement of supplies, as it did for once before for semiconductors in the 1950s and 1960s.

Foroohar concludes by sayng “It does matter what governments do to support domestic demand or control supply chains,” adding “I suspect that those decisions will start to revolve less around simple cost and efficiency calculations, and more around a broad discussion of national competitiveness.”

What are your thoughts on US manufacturing? Can it really rise again? Let us know your thoughts at the Feedback section below

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