A new report from Heartland Forward, the non-partisan, non-profit Midwest economic renewal think tank based in Bentonville, Arkansas, has called for a range of “holistic reshoring” initiatives to bring manufacturing supply chains back to the U.S. heartland.
In a newly released report, “Reshoring America: Can the Heartland Lead the Way?” authors Joel Kotkin, Michael Lind and Dave Shideler cite figures from the Reshoring Initiative, the reshoring research and advocacy group started by Harry Moser, former President and CEO of industrial machinery maker GF AgieCharmilles, estimating that manufacturers have historically undercounted foreign production costs by as much as 20 percent. Adjusting for these added costs, 10-30 percent of producers considering relocating outside the U.S. would actually find it cheaper to remain or expand domestically.
As this realization catches on with some manufacturers, Heartland Forward has put the number of reshored U.S. jobs at more than 400,000 as of 2019, up from 6,000 in 2010.
That figure is expected to grow, made more urgent by critical supply shortages of personal protective equipment and other foreign-made goods experienced during the covid-19 pandemic.
According to March 2020’s Thomas Industrial Survey, covid-19 supply chain disruptions resulted specifically in an acceleration of appetite for locally-sourced materials and services, as up to 70 percent of firms surveyed said they were “likely” or “extremely likely” to reshore in the coming years.
Additionally, the authors cite a UBS study revealing that of U.S. firms now producing in China, 76 percent have moved or are planning to move capacity out of China, with one-third planning to move in the near future. Including Asian and other foreign firms, UBS projects 20 to 30 percent of all China capacity moving, which on $2.5 trillion of Chinese exports would imply $500-750 billion shifting elsewhere, not least to North America.
Between 2000 and 2007 alone, the authors note, the United States lost 3.4 million manufacturing jobs, about 20 percent of the overall number. Another 1.5 million were lost between 2007 and 2016.
By that time, manufacturing accounted for more than one-fifth of all blue-collar professions paying more than $15 an hour, twice its share of the overall workforce.
The authors caution that not all manufacturing jobs are likely to return, as automation and other process improvements have led to leaner operations in multiple industries. But returning jobs would be technically more demanding and potentially better paying: when counting non-wage benefits, the authors note that manufacturing workers earn 13 percent more in hourly compensation than comparable workers elsewhere in the private sector.
Additionally, they note, manufacturing typically has one of the highest multiplier values in a region, such that when manufacturing jobs are reshored, it sparks growth in other sectors by bringing dollars back into communities.
Beyond big tech
Heartland Forward writes that traded sector firms are critical to U.S. international competitiveness. In 2019, the United States exported $2.53 trillion worth of goods and services combined. Of this total, they say, only $875.8 billion, or about one-third, consisted of services. Exports of goods, on the other hand, totaled more than $1.65 trillion. Manufactured goods accounted for 45 percent of all exports.
“It is notable that intellectual property payments, like royalties to Silicon Valley tech companies and entrepreneurs, amounted to only $117.4 billion—13 percent of service exports and less than 5 percent of total exports of goods and services combined,” they write.
The authors say reshoring will require not just “sticks,” like tariffs and bans, but also “carrots,” such as tax policies that encourage investments, loans and loan guarantees, grants, public-private partnerships, and support educational and physical infrastructure to promote areas like development of critical rare metals in the U.S.
New initiatives in education, and a greater understanding of the role of tradable sectors, can be implemented across the country, they write, but most effectively in states with the logistical infrastructure and expertise, business climate and skills that are abundant in the American Heartland.
The authors cite a recent business climate assessment by Chief Executive Magazine Foundation ranking Heartland states Indiana, Ohio, and Texas at the top in business friendliness, and putting seven of the top ten mid-sized cities preferred for new investments, including Columbus, Indianapolis and Kansas City, in the region. Additionally, they note, six of the top eleven public engineering schools in the U.S. are located in the Heartland region.
The authors advocate a politically non-partisan, “holistic reshoring” strategy that would also include major investment in infrastructures like roads, bridges, and wireless networks, updating the historic role of government in these assets.
They say the federal government could also, alone or in collaboration with state and local governments, use instruments like federal loans, loan guarantees and grants under the Defense Production Act, the National Network of Manufacturing Institutes, and the Manufacturing Extension Partnership (MEP) of the National Institute for Standards and Technology (NIST), as well as new tax incentives for investment in high value-added traded sector industries, among other policies.
“The reshoring of industry should not be a partisan issue. As we have seen with the response to the production of critical medical supplies, there is a broad-based bipartisan coalition to promote such policies,” Kotkin, Lind and Shideler write. “For businesses and consumers, attempts to shift out of China could cost as much as $1 trillion, but these shifts would make supply chains more reliable and allow firms to exit from the notorious high carbon supply chains in China, which now emit more GHG than in the United States and the European Union combined.
“Overall, regional economic development strategies, particularly in the Heartland, should prioritize small, traded sector firms capable of major growth and preserve or attract existing large firms in traded industries. This emphasis should not be confused with a bias against small businesses. In a flourishing biological ecosystem, large trees provide shelter under which smaller trees can grow, along with bushes and food sources for various organisms. Similarly, large firms in a region can provide a healthy environment for local firms of all sizes and provide a consumer for their goods and services.”