Product Selection for Reshoring
Another One Bites the Dust – Chips
Early this year, Taiwan Semiconductor Manufacturing Company (TSMC) overtook Intel and Samsung to become the world's largest semiconductor maker by revenue, earning $69.3 billion in revenue in 2023, ahead of Intel's $63 billion and Samsung's $58 billion. This is a remarkable achievement for the Taiwanese chipmaker, which has historically lagged behind Intel and Samsung in terms of revenue despite being the world's largest semiconductor foundry. TSMC's meteoric rise has been fueled by the increased demand for everything digital - from PCs to game consoles - during the coronavirus pandemic in 2020, and AI demand in the previous year. With its cutting-edge production capabilities allowing it to manufacture chips using the latest process technologies, TSMC has pulled far ahead of Intel and Samsung and can now charge a premium for its services.(1)
Figure 1: TSMC Growth Over Intel and Samsung
Just a dozen years ago, Intel’s market share and revenue were greater than TSMC and Samsung combined (see Figure 1 above), but both Asian chipmakers made significantly greater R&D investments than Intel, who is now struggling to catch up. In fact, despite receiving $8.5 Billion in direct funding and Tax Credits on $11Billion from the Federal Government (aka – our tax money) and boldly announcing 10,000 new company jobs, 20,000 Construction jobs, and 50,000 indirect jobs in March of this year(2), Intel recently laid off 15,000 workers in a bid to “cut costs”, including a reduction in R&D spending, just when TSMC and Samsung are pouring Billions into new facilities.(3)
Taxpayers provided $20bn in money to a sagging, bloated American Chipmaker, which then cut 15,000 jobs four months later? If you do the math, taxpayers paid Intel $1.333 million dollars for each employee they laid off. And the CEO still has his job. This is the playbook we’ve already seen in steel, automotive, textile/apparel, and electronics. The pattern is repeated, and the cancer is consuming one of the last American strengths. These are dark times in America
Let’s Avoid Shiny Objects and Squirrels
In their flailing attempts to change the course of American manufacturing competitiveness, coupled with an unquenchable lust for spending money we don’t have on cronyism, policymakers from both parties are trying to use government funds to prop up capitalistic ventures, with a nearly 100% focus on the “shiny objects” of modern industries where we are already ten years late to the party. These include, but are not limited to, semiconductors (already discussed), green energy infrastructure (solar, wind, etc.), electric vehicles, drones, biotech, nanofabrication, and so on.
HermitCrab argues this approach is misguided and wasteful, and if we intend to regain our manufacturing base, we need a multi-pronged approach that includes long-term incentives (not grants), a tariff policy to allow the return of green-shoot manufacturing, and a national conversation about why spending an extra dollar on a rake or shovel at a hardware store is good for America. I say we begin by keeping things simple, and focusing on returning what we are good at making.
The Best Products for Reshoring Are the Ones We Aren’t Reshoring
My point on discussing (1) shiny objects and squirrels, followed by (2) the need to focus on what we are good at making, brings us to an important graphic. The table below is a recap of the nineteen main US manufacturing subsectors, measured by the National Institute of Standards and Technology (NIST), which falls under the US Department of Commerce. This data is from 2021, but the trend is no different in the latest report (2023) – China dominates on most major manufacturing subsectors, according to our own government.
Figure 2: US Manufacturing Subsector Growth versus Size
While the graphic provides the relative size and growth of the subsectors, the table presents them in order of size, starting with the smallest subsector (Apparel) to the Largest (Computer and Electronic).
Figure 3: Subsector Growth
First, Eliminate the Big Balls
Any subsector that produces over $100 billion dollars of goods is considered “Big X”, like Big Oil, Big Auto, Big Pharma, or Big Food. These industries have significant investment and scale in the US and are running effectively in the global market. Some of them are safe from offshoring, especially the three major non-durable industries:
Food and Beverage and Tobacco Products
Petroleum and Coal Products
Chemical Products
Other reasons for avoiding the large subsectors include:
Significant Asset Investment
Complexity of Bills of Materials
Strict Regulatory and Safety Controls
Constantly changing advances in technology
Focus on The Feasible
Anything in the table larger than $100Bn is “too big” for HermitCrab – our focus is on the products that can be sourced and made completely within the Southeast US, including:
Apparel and Leather and Allied Products
Textile Mills and Textile Product Mills
Furniture and Related Products
Printing and Related Support Activities
Nonmetallic Mineral Products
Plastics and Rubber Products
Combined, these six subcategories only represent less than 9% of US Value-added manufacturing, and most are in a five year and 15-year decline, thanks to offshoring. Worse, most of these subsectors were leadership positions for the United States before the “giant sucking sound” of NAFTA and the economic hari-kari of letting China into the WTO, both of which occurred before 2008. The decline of these subsectors was already underway by then.
Let’s revisit the graphic in Figure 1, and highlight the areas where HermitCrab should thrive:
Figure 4: Reshoring Candidates
These six subsegments are discussed in Table 2 below, along with their corresponding North American Industry Classification System (NAICS) Codes, which allows for further drill-down into the products that exist within that subsector. Note that all NAICS Codes are linked in the footnotes. A brief explanation of why reshoring should occur is also provided.
Subsector 1: Apparel(3) and Leather and Allied Products(4) (NAICS 315 & 316)
Examples:
Apparel: ready-to-wear apparel and custom apparel
Leather: Belts, purses, wallets, clothing
Why Reshore?
Apparel: The cotton and means to produce any type of fiber is plentiful in the US. This is the single largest industry that was gutted by offshoring due to the labor cost of cut and sew operations.
Leather: The US exports hundreds of thousands of cow hides to other nations (China buys 90% of our hide exports). Tanning is a messy business but can be reshored.
Subsector 2: Textile Mills (5) and Textile Product Mills (6) (NAICS 315 and 314)
Examples:
Textile Mills: Basic yarn or fabric production.
Textile Product Mills: non-apparel textile products, such as sheets and towels.
Why Reshore? Similar to apparel above, the American Textile Mill Industry was devastated after NAFTA and China's admission into the WTO. Textile Mill products, like sheets and towels, have a lower labor cost rate due to less cutting and sewing, and should be a good candidate for reshoring.
Subsector 3: Furniture and Related Products (7) (NAICS 337)
Examples: Household and Institutional Furniture (such as office or hotel furniture.)
Why Reshore? Besides the nearly complete elimination of North Carolina's furniture making industry, offshoring also took away simple furniture, such as the products you would buy at a large retailer. The southeast is the leading producer of the lumber needed to reshore furniture manufacturing, plus the largest provider of cotton needed to provide upholstery.
Subsector 4: Printing and Related Support Activities(8) (NAICS 323)
Examples: Books, labels, business cards, stationery, business forms, and other materials (how about Board Games?)
Why Reshore? Paper mills dot the landscape in the Carolinas and Georgia, and paper product production (post paper mill) is relatively low touch. There are many good candidates for paper products to reshore.
Subsector 5: Nonmetallic Mineral Products(9) (NAICS 327)
Examples: Glass, brick, ceramic dinnerware, bowls, plates, mugs, terra cotta pots, decorative tile.
Why Reshore? 99% of America's dinnerware manufacturing capacity has been offshored. More than 50% of our glass production has also been offshored, with the exception being glass used for food and beverage consumption. The entire eastern seaboard consists of clay, feldspar, and silica – all the ingredients needed for reshoring can be mined inside the Carolinas and Georgia.
Subsector 6: Plastics and Rubber Products(10) (NAICS 315)
Examples: Anything plastic, like serving spoons or spatulas, which is currently offshored. We don’t need to take on Newell Brands!
Why Reshore? It's ironic that anything made of plastic comes from China, because China has to import the petroleum to make the resins to produce plastics in the 1st place. This certainly is a product set that should be reshored to the maximum extent possible. Plastic spatulas and spoons should not come from another country, period!
Conclusion: The six manufacturing subcategories identified by HermitCrab as candidates for reshoring represent over a million jobs lost over the last several decades due to offshoring. Finding specific products to reshore within each manufacturing subsector is a key next step in determining the best product and location to manufacture within the Southeastern United States. While some initial leg work can be done by HermitCrab and our economic development partners, what is really needed next is a customer that is willing to invest in the process of discovering which of their products can be brought back to the USA. Hopefully, that will happen soon.
Thank you for Reading! Come back tomorrow for Day 20: Leveraging University and Society Support. Reshoring a product set allows key university partners to provide significant expertise to conduct important detailed work. Collaborating with universities and leveraging student expertise provides valuable research, innovation, and manpower for reshoring efforts. This partnership supports detailed project work and enhances reshoring success. This is a unique advantage for HermitCrab.
Thanks for reading,
The HermitCrab Team
Footnotes:
(1) https://www.nist.gov/publications/annual-report-us-manufacturing-industry-statistics-2021 (graphic courtesy of Jeff Winter: https://www.jeffwinterinsights.com/
(2) https://www.nist.gov/publications/annual-report-us-manufacturing-economy-2023
(3) https://www.bls.gov/iag/tgs/iag315.htm
(4) https://www.bls.gov/iag/tgs/iag316.htm
(5) https://www.bls.gov/iag/tgs/iag313.htm
(6) https://www.bls.gov/iag/tgs/iag314.htm
(7) https://www.bls.gov/iag/tgs/iag337.htm
(8) https://www.bls.gov/iag/tgs/iag323.htm
