The End of Seven Dollar Tee Shirts?

Marketing Viewpoint by Ruth Winett

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:

Ensures that chips and other essential parts and finished goods are available to manufacturers, businesses that sell or service goods, and consumers.
Increases domestic manufacturing capacity and manufacturing knowhow, while adding additional US manufacturing jobs.
Accelerates time to market. Also saves energy and reduces pollution when goods are produced closer to markets.
Stabilizes the US’s inventory of goods and parts. Reduces the likelihood of delays because of war, weather, pandemics, and global politics.
Eliminates foreign tariffs and taxes and the cost of currency conversion.
May reduce child labor in third world countries.

Reshoring Has Limitations as Well:

Rebuilding manufacturing capacity will require investments in the billions in plant and equipment and in worker training. In addition, funding, designing, and building new semiconductor foundries and training staff will take years.
Some companies may merely shift manufacturing from China to Thailand, the Philippines, and other Asian countries or bring manufacturing closer to home (nearshoring). Other new US plants are actually foreign owned. TSMC (Taiwan Semiconductor Manufacturing Company) and Samsung (Korea) are building US-based semiconductor plants.
Prices of manufactured goods will inevitably increase, partly because of higher wages in the US than in Asia and the Middle East.
Foreign trading partners will be unhappy about the loss in sales to US customers and may retaliate.

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.

Sources:

https://www.statista.com/statistics/270001/distribution-of-gross-domestic-product-gdp-across-economic-sectors-in-the-us/

“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

https://www.winettassociates.com/reshoring-activity-could-boost-your-business.html, 7/2014.

U.S. Companies Find It Hard to Quit China,” Stella Yifan Xie, Wall Street Journal, 12/12/23, 1.

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https://www.xometry.com/resources/reshoring/nearshoring/

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