The Rise and Fall of Offshoring

For decades, American companies have been sending manufacturing jobs overseas in pursuit of lower labor costs and higher profits. This trend, known as offshoring, took off in the 1970s and accelerated rapidly in the 1990s and 2000s with the rise of globalization and trade agreements like NAFTA.

Lured by dirt-cheap wages in developing countries, American corporations shuttered factories across the heartland and outsourced production to places like China, Mexico, Vietnam and Bangladesh. Manufacturing towns from Ohio to the Carolinas turned into ghost towns of rusted machinery and shuttered main streets as millions of blue collar jobs vanished.

While offshoring has undoubtedly been a boon for corporate bottom lines, many argue it's been a raw deal for American workers and communities. Not only has it hollowed out the middle class and exacerbated inequality, but it's left the U.S. dangerously dependent on foreign nations for critical goods. The fragility of these globe-spanning supply chains was laid bare during the Covid-19 pandemic.

"Decades of offshoring has not only cost millions of American jobs, but has left us at the mercy of countries like China for everything from medical equipment to microchips," says Scott Paul, president of the Alliance for American Manufacturing.

The Case for Bringing It Back Home

Now, in the wake of the pandemic, a growing chorus of voices are calling for a rethinking of offshoring. Proponents of "reshoring" argue it's time to bring manufacturing jobs back to the U.S. - not only to revive struggling communities, but to bolster national security and resilience.

Reshoring is hardly a new concept. For years, some manufacturers, particularly in industries like aerospace and medical devices, have been "nearshoring" to Mexico or "onshoring" to the U.S. to be closer to customers, protect IP, and ensure quality control.

But the disruptions of Covid, along with rising wages overseas and increased automation at home, have shifted the calculus for more companies. A 2020 survey by Thomas Industrial found that 69% of American manufacturers were considering bringing production back from China.

"The pandemic exposed the risks of overreliance on global supply chains," says Harry Moser, president of the Reshoring Initiative. "When you have all your eggs in the China basket, you're vulnerable to trade wars, natural disasters, and shipping delays. 'Made in USA' isn't just good for American jobs, it's good for business continuity."

Moser's group estimates that since 2010, over 600,000 manufacturing jobs have returned to the U.S. through reshoring. He predicts that if the current trajectory holds, the U.S. could recover 3-4 million more in the coming decade.

The Automation Equation

Of course, the factories of the future won't look like the labor-intensive plants of the past. A key enabler of reshoring is advanced manufacturing technologies like robotics, AI, and 3D printing that are leveling the playing field between the U.S. and low-wage countries.

A robot working 24/7 in Cincinnati costs about the same as one in Shenzhen - and it doesn't take coffee breaks or catch Covid. As automation gets cheaper and labor overseas gets pricier, the cost advantage of offshoring is shrinking.

"In industry after industry, automation is erasing the 'China price' advantage," says Hal Sirkin, managing director of the Boston Consulting Group. "When you factor in the benefits of producing closer to your customers - lower shipping costs, greater flexibility and control - many companies are finding it makes good business sense to reshore."

Sirkin notes that labor costs now make up less than 20% of a product's total cost in many industries, down from nearly 50% a few decades ago. "For more and more manufacturers, the incremental cost of producing in the U.S. is getting so small that it's outweighed by the advantages."

Those advantages were spotlighted during the pandemic, when snarled supply chains delayed deliveries of everything from Pelotons to pickup trucks. "If they're making a $35,000 car, every day it sits waiting for a $5 chip is $35,000 in lost revenue," says Moser. "Bringing production closer to the end market minimizes those disruptions."

Betting on 'Made in USA'

Some big names in American business are walking the reshoring walk. In 2012, Apple CEO Tim Cook announced the company would invest over $100 million to assemble some Macs in the U.S. Motorola opened a smartphone factory in Texas (though it later closed). Toy maker K'NEX brought production back from China. And in the most poetic example of reshoring, Etch A Sketch returned to its Ohio roots when its owner purchased the brand and factory from the Chinese manufacturer.

Walmart has also been beating the "Made in USA" drum. In 2013, the retailing behemoth pledged to purchase $250 billion worth of American-made goods by 2023, a move it says will create over a million new U.S. jobs. While some have questioned the follow-through, there's no doubt the company's buying power is reshaping supply chains. Suppliers like Korona Candles and Redman & Associates have relocated production from Asia to the Carolinas to be closer to Walmart's distribution centers.

For some manufacturers, the decision to reshore is as much about values as value. When asked why Liberty Tabletop moved production of its flatware from Mexico to upstate New York, CEO Greg Owens said, "I couldn't go to church on Sunday and look at myself in the mirror if I didn't do my part to bring jobs back."

The company's all-American supply chain, from Midwest steel to New England wood for the boxes, has become a key part of its brand identity and marketing. "There's a growing appetite to buy American," says Owens. "People are willing to pay a little more for quality goods that create jobs in their communities."

Not So Fast

For all the heartening examples, reshoring remains more trickle than torrent. According to A.T. Kearney's annual Reshoring Index, growth in U.S. manufacturing has yet to outpace offshoring. For many products, "the economics just aren't there yet," notes Patrick Van den Bossche, a partner at the consulting firm. "Automation and higher transportation costs are chipping away at the offshore advantage, but not enough to tip the balance for most companies."

There are also risks to bringing production back too abruptly - as Boeing learned the hard way. In 2007, the aerospace giant opened a massive factory in South Carolina to build its 787 Dreamliner, touting it as a showcase for American manufacturing. But production was plagued with delays, cost overruns, and shoddy workmanship - problems blamed in part on the inexperience of the non-unionized local workforce. Only after a decade of headaches and billions in losses did Boeing get the bugs ironed out.

"Reshoring isn't as simple as flipping a switch," cautions Moser. "It takes time to find the right location, train workers, establish supplier networks. Companies need to be strategic and do their homework."

That homework includes carefully weighing factors like access to talent, tax incentives, energy costs, and proximity to customers and transportation hubs. States are rolling out the red carpet to woo manufacturers, but the competition is fierce. And there's always the risk that today's reshoring boomtown could be tomorrow's rust belt if the economic winds shift.

Policy Puzzle

Proponents argue that reshoring needs a push from policymakers to really take off. Among the ideas are tax breaks for domestic production, "Buy American" government procurement rules, investments in training and R&D, and tougher trade policies toward China.

The Obama administration was mostly talk and little action on reshoring, but Trump made it a centerpiece of his "America First" agenda. He slapped tariffs on Chinese imports, jawboned companies like Carrier and Harley-Davidson to keep jobs in the U.S., and created a "Made in America" office in the White House.

While the showmanship was vintage Trump, even some Democrats gave him credit for elevating the issue. "Trump has changed the narrative," says Scott Paul of the Alliance for American Manufacturing. "He put offshoring on the front burner and made it politically risky for companies to send jobs overseas."

President Biden has largely continued Trump's tough line on trade, while putting his own stamp on the made-in-America push. On his first day in office, he signed an executive order tightening "Buy American" rules for the federal government, which spends $600 billion a year on contractors. He's also proposed sweeping investments in R&D, workforce training, and domestic supply chains as part of his $2 trillion American Jobs Plan.

"The future will be made in America," Biden declared in his first address to Congress, invoking the same slogan used by the Obama administration. "We will buy American to make sure everything from the deck of an aircraft carrier to the steel on highway guardrails are made in America."

But some business groups say Biden's plans don't go far enough. The U.S. Chamber of Commerce has called for doubling federal support for basic science and R&D, along with expanding high-skilled immigration to ensure manufacturers have access to top talent from around the world.

Other critics argue that some of Biden's policies, like proposing to raise corporate taxes to pay for infrastructure, could undermine the reshoring push. "You can't say you want to bring manufacturing back, then turn around and raise costs on the very companies you're trying to attract," says Jay Timmons, president of the National Association of Manufacturers.

The Road Ahead

Despite the challenges, there's no doubt that reshoring has the wind at its back. A confluence of forces - from geopolitical tensions to environmental pressures to the rise of automation - are making "Made in USA" an increasingly attractive option for companies. And the pandemic has turbocharged the trend by exposing the fragility of far-flung supply chains.

"Covid didn't just disrupt supply chains, it shattered executives' faith in them," says the Boston Consulting Group's Sirkin. "It was a wake-up call that the way we've been doing things is not sustainable or smart."

Sirkin believes we're at a tipping point where reshoring could really accelerate. BCG estimates that by 2028, the U.S. could capture up to $250 billion worth of exports annually that would have gone to foreign suppliers.

What's needed now, he argues, is a concerted effort by business, government, and academia to seize the opportunity. That means doubling down on advanced manufacturing, investing in workforce skills, and creating a business climate that rewards domestic production.

"If we play our cards right, the U.S. has a chance to regain its status as the world's manufacturing superpower," says Sirkin. "But it won't happen by itself. We need a national strategy and all oars rowing in the same direction."

In the end, reshoring is not just about economics, but about values. It's about recognizing that cheap T-shirts and disposable gadgets come with a hidden cost - one paid in lost jobs, hollowed-out communities, and a frayed social fabric.

By bringing manufacturing back home, we have a chance to rebuild the middle class and restore a sense of pride and purpose to work. We can create an economy that works for everyone, not just the C-suite and Wall Street. And we can ensure that the next generation of American-made ideas are brought to life by American hands.

It won't be easy, and there will be bumps along the way. But as the saying goes, nothing worth doing ever is. The reshoring road may be long, but it's one we must travel if we want to rebuild an economy - and a country - that's built to last.