Is U.S. Manufacturing a New Trend?Emily Lombardo - Mar 23 2023
While the U.S. has been in a declining state of manufacturing since the 1990s, the tide seems to be turning.
It was hard to escape some version of the phrase “unprecedented supply chain disruption” over the last three years. Companies around the world that were dependent on Chinese and low-cost countries based in Southeast Asia manufacturing when the COVID-19 pandemic first hit had to scramble when factories were shut down to contain the spread of the virus. While international manufacturing has started to rebound, the bottlenecks created in 2020 are still posing a problem and were exacerbated when Russia invaded Ukraine in 2022. The many supply chain issues have sparked a global re-examination, and U.S.-based companies, in particular, are considering alternatives to better resiliency.
The alternative that is top of mind for American companies and national leaders is bringing manufacturing back to the U.S., also known as reshoring. While the U.S. has been in a declining state of manufacturing since the 1990s, the tide seems to be turning. In President Biden’s State of the Union address, he emphasized investing in American innovation and America’s industrial future. In 2021, reshoring exceeded foreign direct investment (FDI) by 100% with a record 261,000 job announcements, the best percentage since 2013.
Biden’s newly announced CHIPS Act could revitalize the U.S. as the site for crucially needed semiconductor manufacturing and design. The act includes $39 billion for building new plants and another $13 billion for research and development. Currently, Taiwan is home to 90% of chip manufacturing, with almost all of the silicon chips and processors coming from a single company. “In order to make the United States less vulnerable, there are now national initiatives to shorten and close supply chain gaps for essential products,” said Harry Moser, founder and president of the Reshoring Initiative, in an interview with Plastics Today.
Kearney’s Reshoring Index noted that 92% of executives expressed positive sentiments to the idea of reshoring and, more importantly, 79% of executives who have manufacturing in China have either moved operations to the U.S. or plan to do so in the next three years. Another 15% of executives are considering making similar reshoring moves. One particular industry is leading the way on both reshoring manufacturing and sustainable investment: solar power energy.
The Solar Energy Industries Association (SEIA) wants to see the solar energy boom keep its roots in America, as the U.S. has the raw materials and elements necessary including steel, aluminum, resin, and metallurgical grade silicon. A recent white paper published by SEIA estimates that the solar and storage manufacturing workforce will grow to 110,000 workers and could lead to more than 507,000 new jobs across the industry. The 2022 Inflation Reduction Act greatly expanded incentives for clean energy initiatives, including production tax credits for domestic solar, battery, and wind manufacturing. If properly supported, the Department of Energy’s Solar Futures Study predicts that solar power could supply 40% of U.S. electricity by 2035.
With initial investments currently being made, SEIA says that it expects “more announcements of new large-scale U.S. manufacturing coming online in the next few years” with a “multiplier effect” to other U.S. manufacturing such as steel. While this is still in the beginning stages, solar energy’s focus shows how a detailed and long-term investment in reshoring is starting to come to fruition and could be applied to other industries looking to do the same.
As executives debate the merits of reshoring and start identifying domestic suppliers, it is necessary to consider the conditions around a successful reshoring move. McKinsey’s reshoring report advises that company leaders take note of what makes a supply chain resilient, including focusing on investing automation, digitization, employee upskilling, and sustainability. In a 2020 McKinsey report, 45% of respondents said that the biggest barrier to successful supply chain digitization programs was a lack of “internal alignment.” This is important because, regardless of industry, a company looking to reshore or change its supply chain operatives without a well-thought-out, long-term financial and operation plan that is aligned with stakeholders is set to lose out and potentially worsen existing problems.