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MANUFACTURING MIRACLE

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Made in China

Whether it’s T-shirts, toys, shoes, home decor, electronics, or dozens of other products, we all own something (or many things) labeled “Made in China.” 

In the 1990s and early 2000s, China’s manufacturing sector primarily produced apparel, textiles, and plastic materials. Comparatively lower wages for its labor force made the country an attractive destination for outsourcing manufacturing.

As a result, many countries shifted their manufacturing operations to China, propelling it to become the world’s top manufacturer. Today, China boasts a manufacturing output exceeding $4 trillion, accounting for 28% of global manufacturing output.

The U.S. ranks second in manufacturing output with $2.3 trillion, accounting for 17% of the world’s total. Japan is third with $1 trillion, followed by Germany with $806 billion and South Korea with $459 billion.

Made in USA

Could the U.S. re-emerge as an even bigger manufacturing power, with manufacturing playing a similar-sized economic role as in past decades?

At its peak in 1979, the U.S. manufacturing sector employed over 19 million people. However, by 2021, this had fallen nearly 36% to 12.5 million. Yet, the number of workers in the country increased by 65% during the same timeframe.

But the tides may be turning once again as momentum shifts back toward the U.S. manufacturing sector. Just this year in June, the U.S. hit a record of 582,000 job openings.

Reshoring (bringing manufacturing back home) is becoming a reality, not just a concept. Reuters reports that over 80% of manufacturers are contemplating returning some or all of their production to their home countries.

How come?

Although the production of textiles and furniture, which relies on low-cost labor, often remains offshore, the U.S. manufacturing sector has become increasingly innovative and complex, producing things like semiconductor computer chips and advanced machinery.

Today, many factories now utilize advanced technologies and automated solutions to stay competitive and improve efficiency and productivity.

This evolution demands a workforce with advanced degrees and professional certifications, which still aren’t so easy to find.

The National Association of Manufacturers expects that America will need to fill some 4.6 million manufacturing jobs by 2028, highlighting a gap between existing worker skills and the demands of reshored factory jobs.

Why the sudden interest in producing things in America again?

Main reasons

According to a survey published by CNBC, manufacturers want to return to or invest in the U.S. for the following reasons:

• Proximity to customers and markets – it’s the most important reason for many manufacturers, especially in light of the tough lessons learned from the COVID-19 pandemic, which significantly disrupted supply chains and logistics. Companies want to have as much of the production process as close to home as possible to better respond to and anticipate disruptions.
• Government incentives – the U.S. government has been pouring money into domestic manufacturing as a matter of national security, making significant investments in industrial policies that hope to shape key sectors of the economy.Look no further than The Chips and Science Act, the Infrastructure Investment and Jobs Act, and the Inflation Reduction Act of 2022, collectively facilitating $1.47 trillion of investment into domestic manufacturing.
• Skilled workforce availability and training – the benefit of offshore, low-cost labor for U.S. manufacturers is declining due to the need for more advanced skills. Consequently, training and “upskilling” the American workforce is becoming more practical than training offshore labor.
• Ecosystem synergies – managing and maintaining synergy between various systems and departments is easier under consistent regulations and a stable business environment.

• Image and brand – in today’s climate, where sustainability and ethical practices are key concerns for investors and customers, outsourcing to countries like China has become more challenging.Issues around labor standards, increased carbon emissions and pollution in Chinese manufacturing, and geopolitical tensions between the U.S. and China make reshoring increasingly appealing.

Benefits of more manufacturing

Investments in manufacturing and infrastructure are crucial for strengthening local economies by increasing employment in manufacturing, construction, and related sectors like logistics and retail.

This employment diversification supports household incomes, boosting consumer spending and economic growth. Such investments come with a multiplier effect, where worker spending fuels demand for local services like dining, entertainment, and healthcare, leading to more job creation and business expansion in those areas.

The numbers show that the manufacturing comeback is accelerating as companies build more factories and plants. Total construction spending has jumped over 106% since November 2022.

Dive deeper

To learn more about America’s bounce back in manufacturing, watch CNBC’s video on why factories are returning to the U.S.

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