The Return of Manufacturing?

In The Next American Nation, Michael Lind — a free trade skeptic — posited that as labor costs plummet as a share of the cost of manufacturing goods, we’d likely see a return of domestic production, much of it heavily mechanized. Well, a couple of weeks ago, Timothy Aeppel had a terrific story on how the skyrocketing cost of shipping goods, coupled with the softening dollar and rising Chinese wages and regulatory costs, have made a revival of domestic manufacturing look increasingly plausible (WSJ, 6/13, firewalled).

Edward Zaninelli, vice president of trans-Pacific westbound trade at Orient Overseas Container Lines in San Ramon, Calif., a major shipping line, says he’s heard from customers who are moving production back to the U.S., including a maker of steel pans for car engines.

“I believe a decent amount of production could come back into the States within five years, not everything,” he says. “But it won’t be because of transport costs — it’ll be because other production costs have gone up and companies have realized they can have better control over their production when it’s closer to home.”

For many manufacturers, though, oil prices that have hurtled past $130 a barrel have been the tipping point.

But there are barriers …

One problem is that much of the basic infrastructure needed to support many industries — such as suppliers who specialize in producing parts or repairing machines — has dwindled or disappeared.


In essence, every job added as a result of companies pulling work back home is being more than offset by others reeling from the domestic slump.

Higher fuel costs “may slow the outsourcing of goods in the future, rather than causing a massive shift back of those things that have already been outsourced,” says Daniel Meckstroth, an economist at the Manufacturers Alliance/MAPI, a public policy group in Arlington, Va.

BusinessWeek had a slightly different take on the same question.

Expecting the U.S. to recapture industries that have already gone to China may not be realistic. But the new cost equation likely will influence many decisions about where to locate production in the future. America remains the world’s biggest manufacturer, after all, because it’s still the largest market for everything from drugs and packaged foods to high-end medical equipment. The U.S. may have as good a chance as anyone of being a strong player in nascent industries, whether next-generation wind turbines, medical devices with nano-scale sensors, or electric cars. The challenge will be to persuade reluctant venture capitalists and corporations to invest again in modern U.S. production facilities.

Here’s hoping high-altitude wind power is part of America’s economic future. Ahem.

My guess is that even if we did have a manufacturing revival, we’d soon realize why manufacturing jobs weren’t always seen as an economic panacea. We need to revitalize our infrastructure, a point that’s been hammered by my New America comrade Sherle Schwenninger. And as Americans grow richer, they will consume larger share of goods that need to be sourced domestically — because of their size and durability, and the need for tight quality control, etc. — but the real economic challenge isn’t restoring manufacturing to a central place in our jobs portfolio, but rather increasing productivity in the services sector and public-sector productivity. So say I!