Does America Have Enough Manufacturing Resiliency?

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Even before the Covid-19 pandemic, there were questions worth asking about the United States’ resiliency and self-sufficiency concerning manufacturing. Now, shuttering factories and borders in the name of public safety has thrown some of these shortcomings into sharper relief.

Thankfully, there are also signs that the U.S. may be in a good position to rebound after the crisis and improve its chances of weathering future disruptions while reducing the magnitude of the impact.

Weaknesses in U.S. manufacturing and supply chains

According to the CIA, the U.S. was the world’s second-largest importer of foreign goods in 2017. As a result, in 2018, the census noted a $616 billion trade deficit for the U.S.

Trade deficits can be a sign of relative wealth, as is the case for America. As one writer put it, the average American citizen is “wealthy” enough to “afford to purchase what other nations have to offer.” The negative correlation between trade deficits and a lack of self-sufficiency is clear, however. An abundance of dollars does little good if products can’t cross international borders.

One example of a lack of self-sufficiency in U.S. consumer goods supply chains includes the textile and fashion industries. In mid-February, authorities at U.S. ports noted a 12.9% drop in clothing shipments due to factory and distributor closures throughout China. Industry experts predict a worsening and potentially “disastrous” downturn in the clothing and textile industry through the first six months of 2020.

In 2018, Chinese imports accounted for more than 35 cents of every dollar spent on clothing in the United States. Vietnam and India represented around 11% and 7% of U.S. clothing consumption, respectively. The relative lack of affordable domestic clothing and textile options makes this one sector that exemplifies America’s trade weaknesses in critical industries.

The electronics industry is another. China provides around half of all LCD panel shipments in the world, which are critical for production in sectors like laptops, televisions, computer monitors, smartphones, industrial controls and automotive manufacturing.

All told, the Port of Los Angeles — one of America’s largest — had registered a 22.9% total drop in cargo container volume from China by early March.

The ongoing skills gap is another weakness in the fabric of America’s manufacturing and supply chain sectors, although not one that’s unique to the U.S. Some 89% of American manufacturers are having to leave job openings vacant or consider offshoring due to a lack of qualified and motivated applicants.

Around 2.4 million manufacturing jobs may go unfilled between 2018 and 2028 if employers don’t find a way to fix their communication and education problems, as well as the perceived stigma among the public when it comes to decent-paying blue-collar jobs.

Helping employers develop outreach campaigns and stronger relationships with trade schools and universities would substantially strengthen America’s domestic manufacturing capacity and make the nation more resilient in the face of global pressures — including pandemics and other major setbacks.

The strengths of American manufacturing and supply chains

What America lacks in manufacturing capacity, it makes up for in the quality of its manufacturing environment. Research from the Brookings Institute names the U.K., Switzerland and the United States, in that order, as the first-, second- and third-place nations for manufacturing environment quality.

The U.S. earned high marks for metrics like risk index, low corruption and attractive corporate tax policies, yet showed room for improvement in the quality and quantity of manufacturing infrastructure, the cost of education and the number of patent filings.

The environmental strength of America’s manufacturing sector could place the U.S. in an appealing competitive position after the Covid-19 crisis passes.

With the cost of labor rising across the globe, the quality of a nation’s manufacturing environment is becoming a critical factor in countries looking to relocate, offshore or otherwise invest. The previous main driving force was low-wage labor and therefore lower overhead. Companies looking to isolate themselves against risk, some forms of corruption and questionable product quality could soon find a substantial reason to manufacture in America, thereby boosting the United States’ exports.

Although many Americans probably think of China first when they think about consumer and industrial electronics, data from the Thomas Supplier Discovery Platform shows that the United States “overwhelmingly dominates in the electronics industry” outside of “low-cost manufacturing.”

American electronics companies boast some of the highest market caps in the world. These include:

• Amphenol Corporation — $27.03 billion
• Dolby Laboratories — $6.38 billion
• Hubbell Incorporated — $6.2 billion
• Acuity Brands — $5.29 billion

These companies have a global reach, as well as a robust domestic manufacturing presence.

Between 2016 and 2017, American exports of electronics increased by $7.9 billion — an encouraging sign and also an indication that companies based in the U.S. could increase their presence further to become more self-sufficient in the future. Imports from China, Taiwan and elsewhere in Asia increased over the same period, however, indicating that not every U.S. company was putting manufacturing environment quality ahead of labor cost savings.

Another key here is the measurable strength and openness of America’s technology research infrastructure. With so much innovation taking place on American soil, companies can reap the benefits of shortening their supply chains by manufacturing here, as well.

Reviving and strengthening U.S. manufacturing

Transparency, timely communication and the ability to pivot to alternative sources for critical products and components are also paramount. Some companies, including Caterpillar, are also redistributing valuable parts of their supply chains so their industrial customers have more reliable online access to them, even with curtailed travel and trade.

Like several other major corporations, Caterpillar has withdrawn their 2020 financial outlook. However, with many of their crucial facilities still up and running, customers should still have access to mission-critical equipment and parts, both new and refurbished.

Companies that want to mitigate the effect of Covid-19 on their supply chains have some options:

• Digitizing transactions and recordkeeping for speed and transparency
• Enterprise resource planning systems to keep manufacturers, distributors and customers in better sync with supply and demand
• More rapid onboarding when seeking alternate suppliers in other geographical areas
• Ongoing assessments for supplier condition, flexibility and risk
• Improved end-to-end supply chain training, including data analysis, forecasting and transparency

Again, Covid-19 was not the first disruption to critical supply chains like textiles, clothing, electronics and construction equipment and parts. In 2017, 74% of company representatives surveyed by Deloitte reported facing a “disruptive” outside event in the previous three years.

This novel coronavirus isn’t the first event of its kind, and it won’t be the last. The silver lining is that it has countries and corporations reevaluating their self-sufficiency and resiliency in manufacturing and distributing some of the world’s most critical products.