American manufacturing capacity has supported the global political economy for more than three decades despite, financial crisis, political instability, and natural disasters. Eventually, it began to dwindle during the 1970s and 1980s when firms started offshoring their supply chain due to the availability of cheap labor in Asian countries, particularly China. The general downside of offshoring for America was a decline in native skillful labor and reliance on foreign suppliers. The Covid-19 pandemic followed by a strict lockdown in China halted production and supply chain across the globe. At the same time, the rising wages and environmental implications in the offshore regions of Asia were making them invaluable destinations for manufacturing that were once attractive due to profit maximization purposes.
Eventually, the geopolitical competition for technological supremacy between the US and China grew intense after Beijing announced its Made in China 2025 Initiative.
The purpose was to develop indigenous manufacturing capacity and accelerate growth in Fourth Industrial Revolution technologies like AI, Machine Learning, and Robotics etc.
US administration also recognized the strategic significance of innovation and manufacturing in maintaining military modernization and global leadership. Consequently, US firms that once outsourced their jobs and production began to bring them back from overseas to keep America competitive in advanced industries of the present time. At the heart of this onshoring policy lies the need to develop domestic semiconductor manufacturing capacity. The idea gained traction when semiconductor shortages halted the automobile industry, and consumer electronics during covid-19 pandemic resulting in inflation and supply chain disruption. Other sectors targeted under the reshoring policy include infrastructure development, transportation, shipping, etc. The strategic focus emphasizes the significance of these industries in the eyes of America beyond supply chain disruption.
In this regard, the Biden administration has taken various measures to boost the economy and address national security concerns. Significant legislations have been adopted to onshore the manufacturing jobs and production namely, The Chips and Science Act, Infrastructure Investment and Jobs Act, and the Inflation Reduction Act. The purpose of these initiatives is to expand indigenous semiconductor production, strengthen the manufacturing capacity of America in Artificial Intelligence, Semiconductors, green energy, and biotechnology, as well as provide tax credits to reshoring companies to revive them.
According to Bloomberg, there has been an almost 116% increase in the construction of manufacturing facilities in America over the past year.
Simultaneously, reshoring is not limited to government measures as innovation hubs that involve collaboration between R&D institutes and venture capital firms, have shown keen interest in revitalizing the domestic economy by building manufacturing capacity. In this regard, various efforts have been made to facilitate public and private cooperation to attract investments in small and mid-size manufacturers. One of the many instances of private-public partnership to revive reshoring is Intel which pledged $100 million to 80 educational institutions to develop Ohio City as a specialized chip land by bolstering semiconductor educational research.
On the other hand, due to a shortage of specialized workforce in particular sectors, the government is actively supporting students to pursue vocational careers to produce a technologically savvy workforce. According to Peter Bermel, electrical and computing engineering professor at Purdue University, approximately 20,000 job openings were in the semiconductor industry as of 2022. Concurrently, engineering universities across the USA are collaborating with industry to train the students for American firms along with upgrading curricula, and hiring specialized faculty.
Similarly, the US is also ramping up manufacturing operations in the nearby region.
According to the Kearney Reshoring Index survey, 70% of manufacturing firms’ CEOs in America acknowledged the significance of near-shoring, and have near-shored, or plans to near-shore to the regions of Mexico, Canada, and Central American states.
Besides, top US firms located in China are steadily moving their business to allied states. Apple is gradually shifting its business from China and has tripled its iPhone production to $7 Billion in India under the friend-shoring approach proposed by the Biden administration.
While efforts are being made for the resurgence of domestic manufacturing capacity, challenges also exist to revive domestic manufacturing capacity and make a favorable ecosystem for indigenous production. The report from industrial real estate firm Cushman & Wakefield indicates that manufacturing vacancy comprise only 10.3% of the country’s total space. Besides, the strict leasing conditions, lack of credible infrastructure, environmental risks, talent gap, and power shortages at specific locations to run manufacturing sites hold potential risks for new and medium-size firms that are planning to relocate to the US.
The author is a passionate individual with a deep interest in strategic issues, cyber security, and AI. With a background in International Relations, she has developed a great deal of interest in analyzing global affairs and understanding the intersection of technology, global governance, geopolitics, and diplomacy.