Harry Moser's Reshoring Initiative measures the degree to which U.S. companies are reshoring jobs and attracting foreign direct investment (FDI). With interest and activity heightened from the pandemic, trade wars, and other factors, I reached out for an update.
As with any conversation today about reshoring manufacturing jobs, we talked extensively about China, and a troubling undercurrent that may profoundly affect America's industrial future.
CompanyWeek: Your 2020 final reshoring numbers are out, and the data indicates, "Reshoring and FDI job announcements for 2020 were 160,649, bringing the total jobs announced since 2010 to over 1 million (1,057,054)." Put those numbers in context for us?
Harry Moser: We track reshoring which is done by U.S. companies, and FDI -- foreign direct investment -- which is done by foreign-headquartered companies, and we typically report on the total of the two trends. In 2010, the total reshoring that year was 6,000 [jobs], and there was a continuous uptrend until 2017, which was the peak year so far, with about 185,000 jobs driven that year by business enthusiasm for the tax and regulatory reform. And then things fell off in 2018 and 2019, primarily due to the trade war. Companies didn't know what the rules were going to be, what tariffs were going to apply to what products, from what countries, for how many years, and they said, "Let's wait and see what happens."
Then, in 2020, we had COVID, and reshoring surged dramatically. The total in 2020 was about 160,000 jobs, the second highest on record. So to have that happen during a pandemic was incredibly good, and the fact that reshoring was so strong, shows that companies are taking care of "home." They realize -- for U.S. companies at least -- that their main market is still the U.S., and therefore they're putting their investments in the U.S., where FDI has of course slowed down.
From a different perspective, this is the first time that reshoring has been stronger than FDI in about the last seven or eight years. A million jobs have been announced, and given that it will take a year or two from the announcement until the hires are actually made, we think that conservatively, 700,000 or so jobs have actually been created. To put that in perspective, that's more than the actual employment increase since 2010, meaning that if we hadn't had the reshoring, manufacturing employment would have gone down instead of up since 2010, and the 700,000 is about 6 percent of total manufacturing employment.
CW: So, what does 2021 look like? It would seem that, given the disruptions in the supply chain companies are experiencing, we'd see an acceleration in the trend?
HM: Our forecast is for 200,000 total jobs in 2021, the reason being that basic driving factors are still in place: companies are still very much aware of COVID, Chinese wages continue to rise -- about a week ago it was announced China's year-over-year consumer price increase was about nine percent -- and their business costs continue to go up dramatically, so they are somewhat less competitive overall.
There's also significant talk about "decoupling." One of the top China experts [in Asia], Eamon McKiney, believes that China is so mad at the U.S. -- because of Trump, because of Taiwan, Huawei and other things -- that China, at some point in time, will not allow any of its companies to ship anything to the U.S. They will totally decouple. I've heard other experts echo this sentiment, maybe not as strong a view, but obviously, if it happens, there would be a lot of reshoring happening very quickly!
But even the possibility it could happen, that companies could be totally cut off from their Chinese sources, not in two years but bam, like that, should be enough to get companies to pull back the most important, hardest to replace, the most critical items here, but if not here, then Mexico or someone else they can count on.
CW: On the other hand, that seems to run counter to China's demographic challenge, that China has to create millions of jobs each year to continue to support middle class growth. Many of those jobs are in manufacturing companies making products for American brands.
HM: I would not agree with all of that. Actually China's working age population, say 18 to 65, is dropping at the rate of about three million per year. Why? Because of the one-child policy that went into place, what, maybe 40 years ago? Even though they've relaxed that policy, today the Chinese are saying, "Life's good with one child! We're not going to have three or four kids." A lot has been written about the question, "Will China become rich before it gets too old?" and the demographics, the increase of the over-65 population, is frightening for them. Increasingly, there will be fewer people to replace the retiring population.
What they really need to do -- obviously they shouldn't cut us off completely -- is to get their own people to consume more. They save, roughly, 40 percent of their income where Americans normally save 3 or 4 percent of their income. That's why the Chinese have so much money to invest in factories, in highways, in everything else. They need to get their population to spend more, to become the consumers that Americans are, and absorb that extra capacity they're shipping to the U.S. Conversely, Americans need to work more and save more, and create the productive capacity that we're now getting from China.
CW: Just to stay on that point. It does seem, though, it would be a bit of a "cut your nose off to spite your face" approach. Decoupling would force the U.S. to strengthen its industrial base. The U.S. would become a more capable industrial competitor and global threat to China.
Moving on: Do you see, as others do, the entry of China into the WTO as a low-water mark for U.S. manufacturing? Can we coexist with China as an equal trading partner?
HM: Under the current terms of trade, we cannot coexist with almost anybody. The U.S. has a trade deficit with nine of its top 10 trading partners. The exception is the U.K., which is a basket case for manufacturing, relative to its glorious manufacturing past, and the U.S. has followed the same decline.
If you look at what China did, as they grew, they produced products that otherwise would have been produced in Mexico, in Taiwan, South Korea, Japan, India, Malaysia, wherever. But China invested the most, they were the hardest working, bid the lowest prices, whatever, and they got the contracts. Right now we have a $900 billion trade deficit. If China did not exist at all, I still think we'd have a $750 billion trade deficit!
All these countries have industrial policies that combine things like currency, taxes, training and education, investment in research and facilities, et cetera. We don't. I call it a "de-industrialization" policy. If you want to destroy your manufacturing, you'd do what we do: Every poor country you want to help, you'd give them favored-nation status to import products to the U.S. with lower duties than they give us; you'd spend billions protecting the rest of the world from pirates and terrorism; you'd allow your universities to flourish in liberal arts and your skilled workforce to decline; and you wouldn't have a value-added tax to protect your key industries. If you want manufacturing to disappear, that's what you'd do. And we've done that.
CW: Well said. How do the numerous recent initiatives strike you -- legislation in the Senate and reference to a new industrial policy?
HM: I refer to them as "the Biden supply-chain effort." And I call those things "tourniquets," because our country has ignored these things for so long, because we're in such a dangerous place of losing key industries, it's certainly necessary to make these investments at a national level, and 10 years from now will be too late.
On the other hand, it's not clear that you can save the patient that way.
CW: How so?
HM: The simplest thing to understand is chips. Taiwan Semiconductor is talking about one big chip plant in the U.S. Intel is talking about two, and the U.S. government is going to subsidize a few more, and soon we'll be making two or three times as many chips as we do now. But the cost of making them, no matter the subsidies of the factories, will be higher because of higher labor costs here than in China or Taiwan; the costs of building the factories will be higher. So you're going to have chips that are more expensively made here than made there.
Then, who's going to consume the chips? Where do the chips go? Into cell phones, televisions, game boxes, servers, whatever -- and almost all those things are made in China! We'll be a high-cost producer of chips, dependent on China to buy all the excess chips above and beyond what we can consume. So instead of depending on them for chips, we're going to depend on them being a customer for our chips.
My conclusion is that yes, we have to invest in chips, you can't just drop out of that game, but we need to make the U.S. competitive by currency, by skilled workforce, by VAT, and motivate companies here to start making the products to consume the chips. Otherwise, we won't be in much better shape than we are today.
Bart Taylor is publisher of CompanyWeek. Contact him at btaylor@companyweek