by Jessica Beeson Tocco
As the nation’s largest, woman-owned, bipartisan firm, watching the Presidential debate was difficult. The moderators seemed to focus on divisive issues like abortion, immigration, and past performance for clickbait instead of drawing out more information about the nation’s biggest concern: the U.S. economy the current state of U.S. manufacturing and its status coming out of the COVID-19 pandemic in 2020.
A Brief History on the Current State of U.S. Manufacturing
To lower consumer costs and sustain multinational corporations, American manufacturing of textiles, electronics, and consumer goods initially moved to Mexico, Japan, Taiwan, and South Korea in the 1960s and 1970s. Eventually this became part of a broader strategy for globalization that would not only lower prices but empower local economies worldwide and help to build new economies. Countless authors, professors, and world leaders both heralded and discouraged globalization as it made its mark on the last century, creating a new set of global powers like China and India. Although we did onshore a number of electronics production capabilities in the 1970s, due to the silicone revolution, and our communications in the 1990s, we accompanied that by the movement of suppliers abroad, leading to losses of jobs and dedicated R&D throughout supply chain – making us dependent up foreign partnerships.
Fast forward to the 2010s, and the narrative began to change once again. As highlighted in 2012 by CNBC, there was a noticeable trend of manufacturing jobs returning to the U.S. after decades of outsourcing. Factors such as rising labor costs in previously low-cost countries, supply chain disruptions, and a growing emphasis on local production began to reshape the manufacturing landscape. Companies started to recognize the value of domestic production, not just in terms of cost, but also in quality control and responsiveness to market demands.
Since 2020, U.S. manufacturing has rebounded and experienced significant growth, surpassing pre-pandemic levels. This is because the challenges of the pandemic highlighted our nation’s need for a reliable supply chain for medical supplies, semiconductors, and just average daily goods and materials. Soon after taking office, President Biden authorized an Executive Order on Supply Chain to secure critical goods, services, and products for our economic and national security strength.
Lessons Learned with Shawmut Corporation
In 2020, A10 Associates was part of the global onshoring for manufacturing during the pandemic, working with multiple companies throughout the USA. One in particular was Shawmut Corporation’s response to the urgent need for the N95 masks early in the pandemic. N95s are filtering respirators that use a polypropylene non-woven fabric made by a melt-blowing process. The melt-blown fibers are randomly deposited in a sheet and electrostatically charged to form a highly efficient, fabric-like filter material. The filter material is then ultrasonically welded to a thermo-formed cup to create the face-fitting part of the mask. This is followed by an assembly process that adds head straps, an aluminum nose clamp, nose foam, and the required markings that the National Institute for Occupational Safety and Health (NIOSH) has approved the product.
As it tried to rise to the occasion, Shawmut had to confront two challenges: finding sources of melt-blown filter material and ancillary components and acquiring automated production equipment for the fabrication and assembly of the mask itself. Not surprisingly, China is the major producer of melt-blown fabrics thanks to the scale and scope of its garment industry. As the garment industry moved to Asia in the early 2000s, melt-blown fabric producers moved as well to be close to those customers. Even U.S. domestic manufacturers of masks rely heavily on Chinese sources — including their captive facilities in China — for some of their melt-blown fiber. Though there were a few domestic sources of melt-blown fabric, no manufacturer could offer Shawmut any capacity when it needed it.
Shawmut also struggled to find U.S. sources for mask components such as moldable cup materials, elastic straps, and specially coated aluminum strips for the nose bridge. All of these were available from numerous suppliers in China, but developing a domestic source took months of trial and error. The void in domestic tool-making capacity was even more challenging. Shawmut was able to acquire a melt-blown fabric line from Reifenhäuser of Germany on an “accelerated” seven-month delivery schedule, but there were no suppliers of N95-cup-mask assembly equipment in the United States or Europe. With most of the world’s mask production capacity in China, equipment suppliers had shifted there as well.
Shawmut was able to identify five Chinese suppliers who offered automated equipment with delivery lead times as short as 30 to 45 days, but adapting the equipment to its line in Massachusetts was challenging due to a dearth of automation engineering expertise in the United States. It took months to reconfigure, debug, and ramp up the new equipment, though Shawmut’s engineers were eventually able to get it running. By November 2020, Shawmut had installed melt-blown capacity to produce 180 million masks per year, started up the first of its 17 mask-assembly lines, and submitted samples to NIOSH for testing and regulatory approval.
It is important to note that Shawmut had to import both materials and production equipment and had to start with relatively little local content, just as China did over the last three decades as it entered new markets. At the same time, Shawmut had to compete with Chinese products that were less expensive and sometimes less reliable, while creating their own factory from their own new supply chain. Moreover, NIOSH and the FDA approval process, although supposedly “rapid” during the pandemic was not. While government agencies strived to protect citizens from bad products during this time, their delay in approving products like Shawmut’s created a barrier to investment and fast market entry, while other countries flooded their products with their supplies that had been pre-approved through systems long ago. While Shawmut was eventually successful in selling both masks and medical gowns to FEMA and other agencies nationwide, the cost, time, and strains associated with coming to market were unnecessary and highlighted the risks for U.S. manufacturing and supply chain.
The lesson we learned from this experience was that supply chain centers must be accessible and reliable for manufacturing and assembly locations, in order for these operations to be possible in the USA. Simply manufacturing in the U.S. without ensuring supply chain is not realistic or feasible. Moreover, supply chains must be diversified, and this can only happen through investment in R&D and capital for new companies to come to the market. This prevents a handful of suppliers from dominating and managing the global system, setting prices, timing, and availability of goods and services. Policy makers must weigh how regulatory processes can hurt good companies as much as they protect consumers, and find ways to streamline processes for good actors and new comers – especially American companies.
To date, the U.S. has made some good choices and had subsequent years of a robust recovery. According to the Bureau of Labor Statistics, manufacturing output in the U.S. was 3.5% higher in the second quarter of 2022 compared to the last quarter of 2019, which was unaffected by the pandemic. This growth trajectory continued into 2023, with manufacturing employment surpassing pre-pandemic levels, reaching close to 13 million jobs by January 2024. However, despite the recovery in output, the U.S. manufacturing sector has faced a long-term decline in the number of manufacturing plants and jobs. Since 1997, the U.S. has lost over 91,000 manufacturing plants and nearly 5 million manufacturing jobs. However, from 2016 to 2019, the sector did gain approximately 500,000 jobs, largely driven by increased domestic purchasing due to tax cuts and federal spending.
The surge in demand for durable goods, coupled with a shift in consumer behavior during the pandemic, has played a pivotal role in this recovery. As people adapted to new lifestyles, the need for various manufactured goods increased, driving production levels higher than before.
Key Factors Driving Growth
Several factors have contributed to the resurgence and current state of U.S. manufacturing after President Biden’s February 2021 declaration on U.S. Supply Chain.
- Increased Investment in supply chain and R&D: Legislative measures such as the Infrastructure Investment and Jobs Act (IIJA), the CHIPS Act, and the Inflation Reduction Act (IRA) have spurred record private sector investments in manufacturing. For instance, investments in semiconductor and clean technology manufacturing have nearly doubled since 2021, with over 200 new clean technology manufacturing facilities announced, representing an investment of approximately $88 billion.
- Labor Market Recovery: The manufacturing sector has added roughly 1 million workers between 2010 and 2021, indicating a reversal of the long-term decline in employment. As of early 2024, the number of manufacturing establishments in the U.S. grew by more than 11% since 2019, reflecting a strong labor market recovery. The investments through IIJA, CHIPS, and IRA have led to at least 750,000 new jobs to date.
- Technological Advancements: The adoption of advanced technologies, including automation and digital tools, has enhanced productivity and efficiency within the manufacturing sector. Many manufacturers are now implementing smart technologies to streamline operations and improve supply chain resilience. NIST, DOE, and other agencies have invested millions in technologies for these industries.
- Construction Spending: As of May 2024, annual construction spending in manufacturing soared to $234 billion, tripling since January 2020. This increase in construction spending is indicative of the industry’s growth and the expansion of manufacturing capabilities.
- Private Sector Investment: The private sector since 2020 has invested over $225 billion in manufacturing facilities, R&D for better manufacturing, and supply chain. Driving local expansion for companies from Walmart to General Electric – which was one of the first companies to offshore these efforts in the 1960s. Most of the federal, state and local programs available require private sector matches, from DOE loans to economic development projects, incenting private sector investment like never before.
- The “Made in America” Plan: Announced in September 2020, this initiative committed $400 billion to support U.S. manufacturing. It includes a 10% Offshoring Tax Penalty on profits from overseas production and a 10% credit for companies investing in domestic manufacturing. This plan aims to level the playing field for American manufacturers and encourage local production, thereby enhancing job creation and economic stability.
- Regulatory Oversight and Modernization: The Modernization of Cosmetics Regulation Act of 2022 and the establishment of the Office of Critical Foods within the FDA are examples of how regulatory oversight has been enhanced. These measures aim to ensure safety and quality in manufacturing processes, particularly in the food and cosmetics sectors, which are vital for public health.
What Industries are Leading a New Era of U.S. Manufacturing
- Semiconductors – The semiconductor industry has seen a remarkable resurgence in the U.S. due to the enactment of the CHIPS Act, which aims to bolster domestic chip production. This legislation has spurred significant investments, with companies announcing plans for new manufacturing facilities. By 2024, the first of these plants is expected to begin production, addressing the ongoing chip shortages that have plagued various sectors, including automotive and consumer electronics. The investment in this sector is nearly double that of previous years, highlighting its critical importance to the U.S. economy.
- Clean Energy Components – As the U.S. intensifies its focus on renewable energy, the clean energy sector is experiencing a boom in U.S. reshoring activities. The Inflation Reduction Act (IRA) has catalyzed the establishment of nearly 200 new clean technology manufacturing facilities, representing an investment of approximately $88 billion. This shift not only aims to meet domestic energy demands but also positions the U.S. as a leader in the global clean energy market. The anticipated creation of over 750,000 jobs in this sector underscores its potential for economic growth.
- Electric Vehicles (EVs) and Batteries – The electric vehicle market is another area witnessing substantial U.S. reshoring. With the growing demand for EVs, manufacturers are increasingly investing in domestic production of electric vehicles and their components, particularly batteries. This trend is driven by both consumer preferences for sustainable transportation and government incentives aimed at reducing carbon emissions. The focus on local production helps mitigate supply chain risks and enhances the resilience of the automotive industry.
- Consumer Goods – Many consumer goods manufacturers are also reevaluating their sourcing strategies, leading to a rise in U.S. reshoring. Companies are recognizing the benefits of producing goods closer to their customer base, including improved product quality, shorter delivery times, and the ability to respond quickly to market changes. This shift is particularly evident in industries such as textiles, electronics, and food products, where consumer preferences for local sourcing are becoming increasingly pronounced.
Challenges for Continued U.S. Manufacturing
Despite the positive trends, the manufacturing sector still faces challenges, particularly in terms of labor shortages and supply chain disruptions. Persistent shortages have complicated production and delivery across various manufacturing subsectors. However, companies are employing innovative strategies to navigate these challenges, including scenario planning and enhanced supplier engagement. Additionally, as manufacturing evolves, the integration of advanced technologies has become central to operational efficiency. The push for digital transformation and Industry 4.0 has led to increased automation and data-driven decision-making. However, this technological advancement also brings challenges, particularly in cybersecurity. Manufacturers must now navigate a landscape where cyber threats are prevalent, necessitating robust cybersecurity measures to protect sensitive data and operational integrity.
Moreover, inflation is up more than 20% since 2020, negatively impacting U.S. companies that are trying to onshore, making every cost from wages to rent increase across the board with no end in sight. Moreover, as the U.S. operates on a four-year political cycle, investors and business leaders question the viability of future bets on this growing industry.
Ultimately, as America always does, our manufacturing has demonstrated resilience and adaptability in the face of adversity. The combination of increased investment, a recovering labor market, technological advancements, and rising strategic spending has sustained manufacturing growth. As we look to the future, the ongoing commitment to innovation and investment will be crucial in sustaining this momentum and addressing the challenges that lie ahead, while the federal government must stay out of the way and avoid creating bad regulations for this up-and-coming movement in our nation. The ongoing trend towards domestic production across various industries. The semiconductor, clean energy, electric vehicle, and consumer goods sectors are leading the charge, driven by government initiatives and a growing emphasis on sustainability. As companies continue to invest in local manufacturing, the U.S. is poised to strengthen its economic resilience and create new job opportunities. This transformation not only enhances the competitiveness of American industries but also contributes to a more sustainable future.
These are the stories that should be told, the questions that should be asked, and the accomplishments that should be touted by both parties during the end of the 2024 election cycle. The number one concern of voters is the U.S. economy, and manufacturing is currently twelve percent (12%)of the U.S. GDP. What are your thoughts? We’d love to hear from you.
