May the force be with you,” the celebrated quote from Star Wars, can be applied to current conditions in manufacturing. Presently, shifting forces continue to drive reshoring higher, providing incentives for companies to produce at home.
Supply chain gaps and the need for greater self-sufficiency continue as major forces driving reshoring. Destabilizing geopolitical and climate forces have brought to light our vulnerabilities and the need to address them. Subsequently, great opportunities have arisen for an enduring and meaningful rebound of U.S. manufacturing. Continuing the current trajectory will reduce the deficit, add jobs and make the United States safer, more self-reliant and resilient. So, for those thinking about reshoring, “May the force be with you.”
Right now, U.S. industry has its best chance so far this century to invest, increase productivity and reshore. Five factors make now the right time.
- Capacity utilization is finally around the critical 80 percent level.
- Reshoring’s surge, driven by supply chain disruptions, geo-political risks and government funding will keep utilization high.
- Labor shortages are and will stay severe.
- Students’ perception of manufacturing has improved and will respond further to higher tech equipment.
- The lowest corporate tax rate in 80 years and immediate expensing will help fund investment and improve ROI.
A force of opportunities
A recent McKinsey study concluded that “the world will see a once-in-alifetime wave of capital spending on physical assets between now and 2027. This surge of investment – amounting to roughly $130 trillion – will flood into projects to decarbonize and renew critical infrastructure.” Therefore, it is critical to take advantage of this unique opportunity, this window in time.
Automakers are accelerating the rate of U.S. investment in electric vehicle (EV) and battery cell manufacturing as the industry expands the domestic supply chain. Investments planned for lithium-ion battery factories now exceed $40 billion, creating a “gigafactory boom” according to the Federal Reserve Bank of Dallas. And the host of manufacturers that service the auto industry will also be a part of this iconic giga-force.
The U.S. economy is the largest and about the strongest in the world, so it makes sense to produce here. “One of the most striking things that we are seeing now is the number of companies – U.S. companies and global companies – that are committing to build and expand their manufacturing footprint in the United States,” said Brian Deese, director of the National Economic Council.
For example, Volkswagen plans to pivot to a more stable and predictable U.S. market as a resiliency strategy. “We see that America will be untouched by what’s happening in Europe, so it should be geo-strategically a region in which we should invest more,” said Herbert Diess, CEO of Volkswagen.
China’s increasing strengths and weaknesses should sound alarms for companies producing and sourcing there. Military strength is up, economic growth is near zero and uncertain, and foreign companies are less welcome. The possibility of voluntary decoupling by China or a military incident over Taiwan are increasing. “Bloomberg calculated that almost half of the world’s container ships and 88 percent of larger container ships transited the Taiwan Strait this year,” according to FreightWaves.
Additional forces include the ongoing labor shortage, rising wages and China’s zero-Covid-19 policy that previously was slated to continue through at least 2027. As U.S. companies recognize that China will not be as good a market as in the past and an unreliable source of goods, they will increasingly choose to reshore.
Award-winning example
Hardinge Inc., a multinational machine tool and accessories builder with global headquarters in Atlanta, Ga., serves as a good example of reshoring, particularly in bringing back work from areas affected by the uncertainty surrounding China. Hardinge shifted the manufacturing of its milling and turning machine center solutions from its Taiwan plant to its plant in Elmira, N.Y., and in doing so, received the 2022 National Metalworking Reshoring Award in recognition of its success in bringing manufacturing back to the United States.
“We are very proud to be recognized by the Reshoring Initiative and owe a tremendous amount of gratitude to the hundreds of Hardinge employees both in the United States and Taiwan who worked to make this initiative a success over the last two years,” says Jeremy Michael, vice president and general manager, turning and milling. “Our teams worked late hours with their counterparts overseas to ensure that knowledge and processes were transferred to our facility in Elmira, N.Y., and these efforts were rewarded as we began to see machine tools rolling off the new lines and out to customers.”
For anyone thinking about reshoring, the Reshoring Initiative can be a good resource. The organization’s main mission is to get companies to “do the math correctly” using Reshoring’s Total Cost of Ownership calculator (TCO). By using TCO, companies can better evaluate sourcing, identify alternatives and even make a case when selling against offshore competitors. Given the forces behind reshoring, it is time to act.
As Yoda said in The Empire Strikes Back, “Try not. Do or do not. There is no try.”
