Marketing Viewpoint by Ruth Winett
The End of Seven Dollar Tee Shirts?
A New Look at Reshoring
Have you recently bought inexpensive headphones from Amazon and a cheap shirt from Marshall, both manufactured offshore? Outsourcing or offshoring once seemed an ideal way to produce cheaper goods for US consumers and businesses, but outsourcing has unintended consequences.
First is the loss in manufacturing knowhow and capacity. Largely because of offshoring, by 2021 industry (including manufacturing) accounted for just 17.88% of US GDP, while the services sector accounted for a whopping 77.6% of US GDP, according to Statista. With supply shortages caused by the pandemic, extreme weather, and rising labor costs in China, plus challenging global politics, many companies are bringing manufacturing back to the US. Government incentives have also helped. Reshoring will reduce the US’s reliance on foreign produced goods-- from essential products, such as steel and semiconductors, to clothing, toys, and other consumer products. However, reshoring has limitations, as well.
In 2022 President Joe Biden signed the CHIPS and Science Act, which offered semiconductor companies a 25 % tax credit in addition to $52 billion for capital investments, research and development and workers, according to a White House briefing. CHIPS is an acronym for Creating Helpful Incentives to Produce Semiconductors and Science Act. Reshoring is not just a US phenomenon. The Bundesbank has warned German companies to reduce reliance on their Chinese plants for materials and parts.
Reshoring Has Many Benefits:
Reshoring Has Limitations as Well:
Reshoring has many advantages and some disadvantages. Reshoring initiatives will result in changes in manufacturing, employment, and in consumption. Reshoring could also lower the “total cost of ownership” (TCO), according to Henry Moser of the Reshoring Initiative. Reshoring could also change consumer behavior. If reshoring causes increases in the prices of goods, like tee shirts and small electronics, this could eventually reduce the American appetite for these goods. The availability of inexpensive goods with short lifespans results in excess consumption and contributes to our overflowing landfills.
“German Firms Defy Pressure to Limit China Exposure, “Wall Street Journal, 9/21/23. www.engadget.com › the-white-houses-39-billion-chip-making-giveaway-starts-today-210717470
U.S. Companies Find It Hard to Quit China,” Stella Yifan Xie, Wall Street Journal, 12/12/23, 1.
Best Wishes for a Happy and Healthy New Year!
Actionable Business Insights
Copyright ©1/24 Ruth Winett. All rights reserved.
For Email Marketing you can trust
Winett Associates tel: 508-877-1938 email
©2024 Winett Associates. All rights reserved.