Job Creation from Reshoring
Hitting Bottom – the Great Collapse of US Manufacturing
The history of offshoring and its damage to American competitiveness doesn’t need to keep being repeated, because so much of what happened to our manufacturing base was self-inflicted. We cannot take back the mistakes of the past and should focus instead on where we go from here. In 1970, 26% of American jobs were in manufacturing. Since offshoring began in the eighties, that number has decreased to less than 10% since 2010, as shown in the figure below.
Figure 1: Balance of Trade and Job Losses since 1970(1)
The shift is so profound that when you compare the top employers from 1960 to 2022, the trend is alarming. In 1960, the top employers in the US were manufacturers, namely General Motors, AT&T, and Ford. Today, the top employers in the US are retailers, with Walmart, Amazon, and FedEx leading the way. There is not a manufacturing-oriented company in the top 20(2).
Outside Help – The Advent of FDI
What is FDI? Jobs are jobs, but some jobs are less valuable than others. Consider Foreign Direct Investment, or FDI. FDI is defined as an ownership stake in a US-based company or project made by an investor, company, or government from another country. FDI is used to describe a business decision to acquire a substantial stake in a foreign business or to buy it outright to expand operations to a new region. This is not new – consider the BMW Plant in Greenville, SC, or Volvo Trucks in North Carolina, and Kia in Georgia. In the automotive sector alone, each HermitCrab state has taken in a massive and long-term FDI investment.
FDI creates jobs, but the profits return to the home country. Both political parties endorse this concept, so it will not change soon. The Biden Administration passed the CHIPS Act, which gave billions to foreign companies to build facilities here, and even Donald Trump has pledged special benefits for FDI investment, namely a 15% Corporate Tax on FDI-products produced in the US. That will probably accelerate investment due to geopolitical and demographic issues in the countries making the investments to manufacture in the US.
HermitCrab would rather see American companies take the long view and build their manufacturing and R&D internally to create the industries of the future, but there’s too many challenges to count for that to be a reality anytime soon – so let’s focus on jobs we can bring back under the umbrella of Made in the USA, and owned by the USA.
How Many Jobs Are Coming
The return of manufacturing jobs to the US is already underway, thanks to the steady increase in reshored job announcements since 2010, as shown in the figure below. Reshore Initiative does a great job of tracking the announced new jobs from both reshoring and Foreign Direct Investment, and the figure shows a dramatic uptick in new jobs announced during and right after covid, once we saw the lack of resiliency in the global supply chains, as well as the actions taken by trading partners during our times of need. Sadly, both reshoring and FDI announcements fell back in 2023, now that things are “back to normal”.
Figure 2: Announced Reshoring and FDI Jobs, by Year(1)
What Industries are Expanding?
Since the US already dropped the ball and lost our leadership in dozens of manufacturing sectors during the offshoring boom, the emphasis of the last 10 years has been to protect new technologies and hi-tech manufacturing, as if that will solve the manufacturing challenges of our country. The government has decided on a strategy to pick winners and losers via grants or investment, such as the CHIPS Act, which throws taxpayer money at semiconductors and defense contractors. Intel, which received the largest grant from CHIPS (nearly $9Bn) just announced a layoff of 15,000 employees after committing to hire 10,000 employees because of the grant. What?? Add to that several foreign semiconductor manufacturers (Samsung, TSMC, BAE Systems) received a combined $13Bn, and you must wonder who thought this was a good idea?
Where is the Expansion Occurring?
The graphic below indicated the large-scale investments for Hi-Tech, Automotive, Energy, and Biotechnology. Understandably, the Southeast (HermitCrab Territory) benefits greatly from their built-in advantages such as collaborative economic development programs, great infrastructure, cheaper labor, access to ports, etc. It’s surprising to see the Rust Belt and Midwest getting so much attention based on their history of wrecking industries such as automotive and metals. It’s also noteworthy that the most-populous states in the US are not getting their share of investment – it’s not surprising California and New York have less projects per capita than half of the other states.
Figure 3: Large Manufacturing Investments in Hi-Tech Industries(2)
This data is interesting, but not in the HermitCrab sweet spot. Products made from wood, plastic, paper, ceramic, and cotton are the focus for job creation due to reshoring, due to the plentiful access to those raw materials within the Carolinas and Georgia, and the thousands of products that are made from those commodities. Not to mention the factories that produced those goods in the first place are still standing, waiting for the products to return. That’s another positive benefit for HermitCrab, because the next figure shows that almost on one is thinking of building factories to produce mundane products in the US. Nearly all the investment (90%+) is aimed at modern manufacturing factory construction, and electronic/chips/computers accounting for more than half. Notice that the explosion in spending occurred two years ago – taxpayer money.
For the products that HermitCrab wants to focus on (wood, paper, and cotton) don’t even merit a mention (they are bunched into the “other” category), while ceramic (non-metallic mineral) and plastic are tiny slivers of the investment dollars. Fabricated metal is worth a mention for two reasons – (1) remember when the US was the steelmaking superpower? Not anymore, and no one is trying to bring that back, and (2) there’s a good chance metal will be needed for future HermitCrab product selections (pressed metal, stampings, fasteners, tubing, etc.).
Figure 4: Construction Spending by Product Category(3)
How Large is the Gap?
According to the Bureau of Labor Statistics, manufacturing employment reached an all-time peak in June of 1979, of 19.6 million workers. In June 2019, employment was at 12.8 million, down 6.7 million or 35 percent from the all-time peak. Since 1979, employment fell during each of five recessions, and in each case, employment never fully recovered to prerecession levels. For the industries that HermitCrab is focused on, the damage is astonishing.
Since 1990, Over 100,000 U.S. furniture manufacturing jobs have been shifted overseas, 60,000+ in North Carolina alone. For all wood-based products, the number is closer to 200,000 jobs.(4)
Offshoring has resulted in the loss of over 35,000 U.S. lighting fixture manufacturing jobs.(4)
Ceramic Dinnerware Manufacturing lost 99% of jobs, or nearly 60,000 jobs. There is virtually no ceramic manufacturing left in the US.
Over two million textile jobs have been lost across the textile and apparel sector since the peak employment in 1973, with almost 400,000 of those jobs lost in the Carolinas(5).
Since 2000, the U.S. has lost approximately 100,000 rubber and plastics production jobs, and approximately 30,000 printing and related support jobs due to offshoring.(4)
Besides the workers affected in these industries, every manufacturing job creates two local jobs, so losing millions of manufacturing jobs has resulted in the loss of additional millions of related jobs, and the devastation of small towns everywhere.
Also, over 70,000 factories were abandoned, and 90% of those shells remain, dotting the American landscape, just waiting for new production to resume inside. HermitCrab has the answers.
The hole is three million jobs deep. In the next ten years, HermitCrab wants to bring back 1% of those jobs. Imagine the economic impact of 30,000 new manufacturing jobs, plus the 60,000 jobs that are created because of the new factories, and we have the seeds of revival in the Southeast.
Conclusion
The offshoring trend is starting to reverse, with jobs returning via direct reshoring and Foreign Direct Investment, but key industries once dominated by the southeast remain almost untouched by the trend. A dedicated effort is needed to target products that can be produced here within the range of the Asian imports. If the effort is successful, 30,000 jobs is just the beginning.
Thank you for Reading!
Everything about the HermitCrab Mission and Value Proposition centers around the creation of net-new manufacturing jobs in the Southeast. The vacuum created by bad policy, corporate decision-making, and product dumping by foreign governments is fixable if the US can see the mistakes of the past and work to fix them. No easy feat, and not sure anyone is trying to do that. Tomorrow’s topic, Supply Chain Simplification, will look at the benefits of keeping the entire supply chain within the US borders, except to export to other countries, of course!
Thanks for reading,
The HermitCrab Team
Footnotes:
(1) Reshoring Initiative (www.reshorenow.com):
(2) Newmark Industrial Thought Leadership Series, September 2023
(3) @JosephPolitano
