Why it’s hard to bring manufacturing back to US

Ding Gang

A recent eye-catching report in the US media said Shawmut, a US construction management firm, has launched a new N95 mask. The advertisement for this mask is even more concise: “Our N95 mask is made in the USA.”

Since the outbreak of the COVID-19 pandemic, the US has imported a large number of masks from China. According to Chinese statistics, China exported about 43.85 billion masks to the US from March 1, 2020 to February 28, 2021. Therefore, the news is seen as a major signal of bringing manufacturing back to the US.

The current trend of bringing manufacturing back the US started in a shift in policy focus advocated by former president Donald Trump. This effort has had some impact due to the overall containment of China in the high-tech sector and the supply chain crisis that emerged from the epidemic. Some manufacturers have begun to move their factories back to the US, in areas such as medicines and chip manufacturing. Some South Korean and Taiwan island’s manufacturers are planning to open new factories in the US due to the pressure from Washington.

However, it is not enough to declare that US’ re-industrialization is a success. It is not so simple as rebuilding factories or assembly lines, it needs to be supported by a suitable social climate and work ethic. So does re-industrialization. People are the most critical players in these processes.

Industrialization has provided the middle class with good welfare, a high standard of living for their families, and the opportunity for the next generation to receive a quality education. At the same time, the success of industrialization is the result of a generation or two’s willingness to work hard, including to do repetitive work on machines or on assembly lines time and again.

After being industrialized or semi-industrialized, many countries have reversed course and begun de-industrialization. They also have had the urge to re-industrialize, but few succeeded. The main reason is that few people want to work in manufacturing anymore, and the entire workforce no longer possesses the skills needed in industrialization.

The current backflow of manufacturing in the US is mainly policy-driven. For example, the growth of US medical mask manufacturers is mainly supported by government financial policies. In the long run, the key factor that decides how far re-industrialization can go is how long this financial support is maintained.

According to The New York Times, the price of some Chinese-made medical masks has fallen to 1 cent during the pandemic, while the masks that use US’ domestically produced raw materials cost about 10 to 15 cents. It is difficult for US manufacturing to maintain its competitiveness with such a cost in the long term, even if Americans are more willing to buy Made-in-US products. And such price levels will only aggravate inflation.

In fact, the main trigger why some products from middle and low-end industries in the US have lost their international competitiveness is that their labor force and prices are much higher than those of developing countries.

Even if the US adopts an approach to increase tariffs on Chinese imports, it will be difficult to maintain a complete transfer of its supply chain back to the US in the long run.

In recent years, the US has imposed steep tariffs on Chinese solar panels, which has reduced direct shipments from China, but it has not succeeded in reducing the US’ overall dependence on imports. The amount of US imports set a record high in 2021. US imports of solar panels mainly come from Malaysia and Vietnam. Malaysia captured 42 percent of US import market share, followed by Vietnam with 38 percent.

The US is ambitious to restore its manufacturing supply chain, especially at the middle and low end, but it is impossible to achieve this goal by relying solely on policy investment or vigorously squeezing Chinese manufacturing. The competitiveness of China and the US in the manufacturing sector depends not only on the high-end, but also on which side has sufficient willing and capable labor forces to engage in middle and low-end manufacturing. This is also an important factor affecting future China-US trade relations.

The writer is a senior editor with the People’s Daily, and currently a senior fellow with the Chongyang Institute for Financial Studies at the Renmin University of China.