Are We Bringing Back U.S. Jobs?

Headwinds

Moser reported that, while there is positive momentum in bringing manufacturing back to North America, there are still some strong headwinds, including and perhaps especially at this time, against the high American dollar. “The dollar makes U.S. products less competitive overseas and domestically against imports,” said Moser. “It used to be that the currencies would adjust according to the flow of goods. If there were too many imports, the dollar would come down. We have a $500 billion per year trade deficit, but the dollar is still very high.” According to Moser, the reason is because the American dollar is considered a safe haven, which forces the currency up more than the trade deficit influences a downward trend.

Moser said that many economists still say the dollar should be 20 to 30% lower overall, but it stays high and that is definitely a detriment to the manufacturing sector. In addition to the high U.S. dollar is the low price of oil. That means that oil prices and shipping rates are down, so the cost of getting goods to North America from Asia is lower now than in recent past, reducing the advantage of purchasing closer to home.

Another headwind according to Moser is the fact that the rest of the world is growing slower than the U.S., so there is more excess capacity in China, Europe and Mexico than is normally the case. Therefore, companies in those manufacturing markets are hungrier to ship here, bringing prices down.

Moser also believes the U.S. has not yet reduced corporate tax rates, which have been the same for 30 years, although some would argue, based on a recent Congressional Research Service study, that U.S. corporations effectively pay no greater tax rate than those in foreign countries.

Tailwinds

Despite the challenges to reshoring, Moser was still positive about the future. “A very important step we are taking in North America is that we are now doing something about rejuvenating the skilled workforce,” he said. “There has been a lot of push on apprenticeships, certifications and credentials.”

He considers the creation of organizations creating credentials as a positive step in getting more students trained into manufacturing. One example is NIMS by the metalworking trade associations where the goal is to develop and maintain a globally competitive workforce. NIMS sets skills standards for the industry, certifies individual skills against the standards and accredits training programs that meet NIMS quality requirements. According to Moser, the participation in these credentialing programs has been rising 20% per year for 10 years, so more students are getting trained to get into manufacturing. VMA is another organization offering not only skills training in the form of Valve Basics but also with the Valve Careers program dedicated to aimed informing and educating young people about the valve industry.

A positive trend toward reshoring is that the cost of energy is still more favorable in the U.S. compared to other countries. “For example,” said Moser, “A fellow who owns a die casting company told me that, for something he makes in U.S. for $100, it was $115 because electricity costs in Brazil are five times what they are in the U.S.”

Another positive trend toward manufacturing in the U.S. is that the cost of plastic resin is very attractive here due to the excess supply thanks to shale gas and new refineries. “So this is bringing plastic injection molders back to the U.S.,” said Moser, “And it takes a lot of valves to make plastics!” According to Plastics News, 70% of plastic industry manufacturers have or will soon re-shore.

The top industries for reshoring in the last seven years are transportation equipment (cars, trains and trucks), appliances, electronic products and machinery.

Another is apparel and textiles. One of the big reasons for apparel coming back to the U.S. is due to the losses retailers take because they’re stocked out. Moser said those losses are $1.1 trillion because they have to order huge quantities of clothes from Asia six to nine months in advance. “By the time the stock gets here, fashion has changed or the sizes are wrong and the stock doesn’t sell. There is a lot of volatility in the apparel market,” he said. “If you’re making it here, you can order two or three weeks in advance and you can adapt supply to demand and not have to do discounts and sales all the time. It’s a better deal for everybody.” Still, in the U.S., we only make 2 or 3% of what we consume, which is up from 1.5%.

According to Moser, about 60% of cases of reshoring are from China. “About 25% of the U.S. companies have moved some operations out of China,” Moser said. “At least 77% of them feel less welcome due to foreign firms targeted with regulatory challenges.” However, all of that work does not come back to the U.S. “It might end up going to other parts of Asia, like Vietnam or Cambodia, or even to parts of Africa, where lower skill level labor is cheaper than China now. The higher tech industries tend to come back to the U.S., though, and medium technical work is often going to Mexico. But at least that is still in North America,” said Moser. “Also, with more jobs going to Mexico, it will have a positive effect on the immigration issue.”

Another positive for reshoring, said Moser, is the negative issues of production offshore like quality, lead time and wages going up. It is also becoming more important to domestic consumers that they “Buy American”.

Moser also pointed out other research from Boston Consulting Group, which found that from 2012 to 2015, the percentage of multi-national companies reshoring to the U.S. rose from 7 to 17%. Also, at a meeting Moser participated in for the American Gear Manufacturers Associations, an electronic poll revealed that 54% of the attendees said that they had reshored or had helped their customer reshore. “Ten years ago that would have been 5 or 10%!” said Moser.

Moser encouraged readers to take advantage of the Reshoring Initiatives to find the tools and information that will make their decision to reshore easier. “The data we have on reshoring is from reports from manufacturers, so I urge VMA members and readers of this article to report to us when they re-shore so that they can be included. That can include deciding to get casting done here instead of offshore or when they convince their customer to buy the valve here or offshore,” said Moser. “If you report these cases to us, then we can help get that published to show how competitive the U.S. valve industry is!”

HOW YOUR COMPANY CAN GET INVOLVED

• Use the free TCO Estimator for more objective sourcing decisions and as a sales tool to convince customers to buy domestically instead of offshore. Contact the initiative for free help if needed in this area (harry.moser@ReshoreNow.org).
• Take advantage of webinars to educate staff and customers on reshoring. Archived webinars from the initiative are always on the website, but check the site also for live webinars.
• Submit reshoring case studies on the Reshoring Initiative’s website at www.reshorenow.org.
• Check the Reshoring Library to see if any of your customers or prospects are reshoring.

Kate Kunkel is senior editor of VALVE Magazine.