Re-shoring of Domestic Manufacturing

By Katie Kleinle

While America stood by and watched the outsourcing of the 1990s choke manufacturing and decimate the working class, not many were surprised when the last Wellstone spinning plant in Gaffney, South Carolina shut down—supposedly for good. But this September brought two things for the area that for years was referred to by locals as a “ghost town”: the reopening of not one but three textile plants, and hope for a fresh start.

What’s shocking, however, is that this story isn’t an isolated incident. Gaffney’s reopening is indicative of a trend occurring across the nation as hundreds of companies (including giants like Apple, General Electric, Ford, Chrysler, Whirlpool, Lenovo, Hon-eywell and Caterpillar) rush to the forefront of a new trend known as “reshoring,” in which companies that formerly manufactured abroad in nations like China move production back to the United States.
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Yet to fully comprehend what reshoring is and why it’s happening how, it’s important that we understand why American companies moved their operations abroad in the first place. Years ago (specifically from the mid-2000’s until halfway through 2012) outsourcing was by far the cheapest way for American companies to produce their goods. Most other countries had little of the expensive environmental regulations found in America, employees were more than willing to work for incredibly low pay and manu-facturers had very few costly obligations to their workers. Because of this lack of strict regulation, business practices in these nations were often less than healthy, but they were permitted to continue because the governments of these countries (including Chi-na, Vietnam, and Argentina) benefited from the resulting economic growth.

Recently, however, this pattern folded in on itself. The money poured into developing nations’ economies when factories were built there created a rising middle class, most of whom are now financially secure and can afford to demand more pay and safer working conditions than when Americans first began hiring in their impoverished areas. Because of this and increased regulation on the governments’ part, the costs of manufacturing in some of the nations we formerly relied on most have skyrocketed over the course of the last two years. This effect is occurring internationally to some extent, but it’s the most obvious in China. According to Hong Kong-based investment group CSLA, by 2015, Chinese wages and manufacturing costs are actually expected to overtake the cost of American production. Because of this, in an effort to cut costs, many American companies are already beginning to abandon operations there or plan to do so in the near future.

This brings us back to our concept of reshoring. Obviously, after leaving China, these manufacturing jobs have to go somewhere. Reshoring and choosing to produce in America means faster turnaround time, decreased transportation costs when moving products into the American market and a significantly lower toll on the environment, which, combined with the assurance that no human rights abuses are being committed in factories, serves overall as an excellent public relations strategy. Furthermore, many American companies have turned to automation and use robots to produce goods, meaning that labor costs will be roughly the same no matter what country corporations choose to manufacture in and making American production cheaper than ever before.

Yet despite the positive incentives, the future of American manufacturing remains uncertain. In a study conducted by the Massachusetts Institute of Technology last year of 156 American-based companies, a mere 15% said they would definitely be bringing manufacturing jobs back to the US in anytime in the future, with 30% saying they would consider it as an option and another 35% declining to answer altogether because they claimed the topic was of a sensitive nature. The jobs these companies spoke of bringing back to America are, for the most part, relatively insignificant compared to the numbers they employ abroad; the vast majority of manufacturing will remain overseas after factories reopen in America anyway. Even these few jobs aren’t guaranteed; another strategy that’s often even cheaper than opening factories in the US is to move operations to an entirely different country like the Philippines rather than deal with the expense of operations at home.

So in the end, Gaffney’s story may turn out to be a fluke. But there are real and positive signs that American manufacturing is coming back, and only time will tell if we can fully harness their potential.