Reshoring, Robotics, and Roller Disco

Workers assemble cars at the newly renovated Ford's Assembly Plant in Chicago, Ill., on June 24, 2019. Jim Young/AFP/Getty Images

Commentary

In the 1970s, with America’s market opening to China engineered by those peerless (not) ethicists and strategists, Richard Nixon and Henry Kissinger, China became the “world’s factory” because many of America’s own factories moved there for the cheap and compliant workforce.

Now folks are starting to realize—in part due to the pandemic, evidence of Uyghur forced labor in China, Russia’s weaponizing of gas exports, and Beijing’s threat of war against Taiwan, which could drag in the United States—that moving all our factories to China maybe wasn’t the world’s best idea from the 1970s.

(Roller disco, it is now clear, was definitely better.)

While offshoring to China might have marginally increased profits for the largest corporations, it destroyed local American communities, industrial bases, and denuded many cities—from Detroit to Baltimore—of good jobs.

Transport costs and emissions increased substantially, with the latter not accounted for in the final cost of production. With the loss of some of America’s finest industrial workers sometimes came the permanent loss of their factory-floor know-how.

Overnight, it seems, America empowered the Chinese Communist Party (CCP), which can now use all of our lost industrial power against us, in a double-whammy, including by threatening to stop our imports of rare earths, pharmaceuticals, and computer chips. True to form, China’s ally, Russia, is now turning off Europe’s gas right before winter.

A loader shifts soil containing rare earth minerals to be loaded for export at a port in Lianyungang, in China's Jiangsu Province. China controls the world's supply of rare earth minerals and the United States is seeking partnerships with allies to reduce its dependence on China. STR/AFP via Getty Images

So Americans and friends are finally realizing—only from getting repeatedly sucker-punched—that relying for strategic goods on ourselves is preferable to relying on the enemies of democracy. Some of our politicians have long pretended, it seems, that these adversaries were friends. They apparently wanted to keep the money train (Soul Train, from the 1970s, was far better) going for the biggest corporations.

Reshoring Accelerates

These same corporations, nudged by U.S. government tariffs and subsidies, are now starting to reverse course and move in the right direction of reshoring American manufacturing. There are variants of reshoring—known as friendshoring, onshoring, multishoring, and nearshoring—all of which are in the right direction as long as they offshore from China and its most powerful authoritarian ally, Russia.

According to The Wall Street Journal, American companies are predicted to reshore 350,000 jobs this year, up from 265,000 reshored in 2021 and only 6,000 reshored in 2010. Reshoring was mentioned 12 times more often in the second quarter’s corporate earnings calls compared to the same period in 2019.

(Just in case anyone is counting again: reshoring, reshoring, reshoring.)

The job data comes from the Reshoring Initiative, a nonprofit that aims “to bring good, well-paying manufacturing jobs back to the United States by assisting companies to more accurately assess their total cost of offshoring, and shift collective thinking” from “offshoring is cheaper” to “local reduces the total cost of ownership.”

To power the trend toward reshoring further requires several measures, according to the organization’s president, Harry Moser. “The reason for offshoring is that the U.S. manufacturing price is consistently too high—about 40 percent higher than China and Vietnam, and 10 percent higher than Europe,” he told The Epoch Times on Aug. 20.

Moser added, “We need to become more price competitive by having a much larger and better-skilled workforce.”

Workers work inside the clean room of U.S. semiconductor manufacturer SkyWater Technology Inc where computer chips are made in Bloomington, Minn., in April 2022. SkyWater Technology/Handout via Reuters

Dollar Devaluation

We should devalue the U.S. dollar and keep corporate taxes low, according to Moser, who believes the dollar is overvalued by 30 percent, which makes our products less competitive versus imports here and when exporting. U.S. capital investment, he said, should stay 100 percent deductible (as it is now) to incentivize more manufacturing and industry here at home.

Jeff Perry, the chief economist at the Coalition for a Prosperous America, likewise argues in The Hill that the dollar should be devalued, boosting American exports and decreasing its debt through a “transaction fee on foreign purchases of financial assets.” The proposed fee, championed by Sens. Tammy Baldwin (D-Wis.) and Josh Hawley (R-Mo.), is called a “Market Access Charge” that would only apply to foreign investors.

Subsidies Versus Tariffs

Much of the reshoring already underway will be in computer chips (also known as semiconductors), clean energy and transportation, and pharmaceuticals.

Why? Because they get the most government support in the form of subsidies and tariffs. They are the biggest supply chain kinks (the chip shortage ground assembly lines to a halt in late 2020), threats (China could deny medicine to the United States in an emergency), and legislative objects of excess (Democrats are now in control and love all things clean and green).

Conversely, Republicans are not so convinced that subsidizing clean energy with hundreds of billions of dollars will fix climate warming, which McKinsey estimates requires hundreds of trillions globally to get to net zero by 2050.

Moser supports a value-added tax (VAT), which he says is the best kind of tariff.

“Tariffs in the sense of a value-added tax, I believe, is the right solution, because it taxes imports and subsidizes exports and you can rearrange the impact of the value-added tax so it isn’t punitive,” he said.

Moser accepts subsidies in certain emergency cases, such as the Chips Act that invests $70 billion in American semiconductor manufacturing and $200 billion in scientific research. (Republicans want those subsidies to include guardrails against the beneficiaries also investing in China—Democrats stripped guardrails from the bill).

President Joe Biden signs the CHIPS and Science Act on the South Lawn of the White House on Aug. 9, 2022. Mandel Ngan/AFP via Getty Images

More broadly, though, Moser argues we don’t have the trillions of dollars required in the long run to achieve reshoring through subsidies alone.

Subsidies “are like an addiction,” he said. “You can’t afford it forever, so get out of it as soon as you can.”

Robotics

Moser argues that as U.S. manufacturing companies reshore, they must turn to robotics rather than mass hiring of industrial workers because “we are in a competitive world” in which industrial labor in China and elsewhere is a third of the price of U.S. labor, and China is automating its industrial processes 15 times faster than the United States.

The Wall Street Journal article, by Dion Rabouin, notes that “North American companies ordered a record 11,595 robots, worth $646 million, in the first quarter, putting 2022 on pace to surpass last year’s record numbers, according to the Association for Advancing Automation.”

Moser believes this automation is good for American workers, as “we will lose more manufacturing jobs to Chinese automation, Indian automation, or South Korean automation if we do not automate.”

America will still get more jobs from reshoring, as should be clear from the data, but they will be on the high-tech side. Reshoring will provide America with the wealth necessary to invest in higher productivity (less labor for the same output through automation), which will increase GDP “in a virtuous spiral.”

Moser warned that if we don’t reshore through automation, “we are going to offshore until the country collapses.”

Robots assemble Ford vehicles at the Chicago Assembly Plant in Chicago, Ill., on June 24, 2019. Scott Olson/Getty Images

German Model of Apprenticeship

German industry enjoys the European Union’s value-added tax (VAT) and devalued currency, according to Moser, which have contributed to its decades-long trade surpluses. (The month of May was the first since 1991 that Germany suffered a trade deficit due to increasing energy and food prices from Russia’s invasion of Ukraine.)

But Germany has one more advantage lacking in the United States: thriving post-high school apprenticeship programs.

“In Germany and Switzerland, 60 percent of high school kids go into apprenticeships, and a lot of those apprenticeships are in manufacturing,” Moser told MSC Industrial Supply in a 2021 interview.

“In the U.S., it’s 3 or 4 percent going into apprenticeships and few of those apprenticeships are in manufacturing.”

Moser points out that those high school graduates who do complete a manufacturing apprenticeship are richly rewarded.

“Graduates of the FAME apprenticeship program in Kentucky are making $96,000 a year 5 years after graduating, which is the same amount of money for the average Ph.D. graduate in the United States, but these programs aren’t getting promoted by guidance counselors.”

Mechanical engineering trainees learn the basics of precision filing at the Siemens training center in Berlin, Germany, on Sept. 1, 2010. Sean Gallup/Getty Images

Pax Americana, Redux

The greater supply chain stability, national security benefits, and wealth production in the United States that results from manufacturing apprenticeships, reshoring, and friendshoring should outweigh short-term price increases for the consumer in the long run.

In the case of the Trump administration’s China tariffs, for example, Goldman Sachs and the Peterson Institute of International Economics estimated that tariffs only increased prices by approximately 0.25 percent (a $100 bill at Walmart rose by $0.25).

Higher per capita wealth and government revenues from reshoring and robotics should provide more opportunities for Americans to focus on science, technology, engineering, and math (STEM) innovation and education rather than returning to reshored factories as laborers.

Through reshoring and friendshoring, the relative global power of the United States and those who support democracy will increase, helping to defend our democracies from the world’s most dangerous dictators in Beijing and Moscow.

Greater American economic power will then help influence and democratize these autocracies, so we don’t need to worry so much about their military spending, and ours.

We could then reap peace dividends of hundreds of billions of dollars, and avoid wars that cost trillions, not to mention uncountable losses from the destruction of human life and the environment seen daily in Ukraine, for example.

Paying 25 cents more on our next shopping trip to Walmart for an American-manufactured pair of roller skates might then be well worth the investment, especially if we can use them at a 70s-style roller disco today (yes, we can).

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.