Has the U.S. Manufacturing Industry Returned to Improve U.S. Competitiveness?

  Promoting the reshoring of manufacturing has been the keynote policy of each administration since Obama took office. The Obama administration, the Trump administration, and the Biden administration have all adopted different measures to promote the return of manufacturing industries in order to protect employment and stabilize economic growth. After the Biden administration came to power, in addition to continuing to implement the manufacturing reshoring policy, it has put more emphasis on ensuring the so-called supply chain security. At present, the U.S. manufacturing reshoring policy has been implemented for more than ten years. How effective is it? What impact has it had on China’s manufacturing industry?
Main Measures for Manufacturing Reshoring

  After 2000, the trend of “industrial hollowing” in the United States intensified, and the proportion of manufacturing output value in the US gross domestic product (GDP) showed a significant downward trend. With the continuous outflow of the US manufacturing industry, the development of the real economy and the virtual economy gradually became unbalanced, and the financial sector expanded rapidly, which eventually led to the 2008 financial crisis. After the financial crisis, the U.S. government gradually became aware of its “industrial hollowing out” problem and began to take a series of measures to revive the manufacturing industry and realize the return of the manufacturing industry.
  After the Obama administration came to power in 2009, it put forward the “Framework for Revitalizing American Manufacturing”, emphasizing the importance of manufacturing, and expounding on the advantages and challenges of American manufacturing. In 2010, the Obama administration passed the “American Manufacturing Promotion Act” in an attempt to reduce the cost of American manufacturing companies and enhance the competitiveness of manufacturing. In June 2011, the Obama administration officially launched the “Advanced Manufacturing Partnership Program”, which aims to improve the construction of the national industrial policy and innovation system by establishing links between the government, manufacturing and academia, and ultimately achieve industrial upgrading. On this basis, the Obama administration passed the “Revitalizing American Manufacturing and Innovation Act” in 2014, requiring the Department of Commerce, the Department of Defense and the Department of Energy to cooperate to build a nationwide network system to improve the competitiveness and competitiveness of the U.S. manufacturing industry. productivity.
  After the Trump administration came to power in 2016, it adhered to the so-called “America First” principle and continued to implement the policy of reshoring the manufacturing industry. The Trump administration released the “U.S. Advanced Manufacturing Leadership Strategy” in 2018, which clarified the development direction of developing new technologies, training the manufacturing workforce, and strengthening the U.S. manufacturing supply chain. At the same time, the Trump administration also uses tax incentives to attract domestic companies to invest locally, and uses trade protection measures to protect American jobs and domestic manufacturing companies. The keynote of the Trump administration’s manufacturing reshoring policy is to no longer emphasize government investment, but to protect the interests of domestic manufacturing companies and promote local investment by companies through a system that combines tax reform and tariff protection.
  After the Biden administration comes to power in 2021, it will continue to emphasize the importance of the return of manufacturing. In January 2021, the Biden administration issued an executive order “On Ensuring Future Manufacturing in the United States by American Workers”, requiring the US government to maximize the use of goods produced in the United States and hire American services. At the same time, the Biden administration also emphasized strengthening the construction of the US supply chain, requiring a review of the US supply chain, and education and retraining of workers in key industrial sectors. In order to reduce dependence on the semiconductor industry of other countries, the Biden administration issued the “2021 American Innovation and Competition Act” to support the development of the US chip industry. In August 2022, the Biden administration successively issued the “Chip and Science Act” and the “Inflation Reduction Act” in an attempt to speed up the localization process of key industrial chains.
U.S. supply chain remains highly dependent on Asia

  Although the United States has launched a manufacturing reshoring policy for more than ten years, due to the impact of uncertain factors such as the new crown epidemic, the US supply chain is still highly dependent on the Asian region. According to AT Kearney’s statistics, in 2008, the United States from 14 Asian low-cost countries and regions (China, Taiwan, Malaysia, India, Vietnam, Thailand, Indonesia, Singapore, Philippines, Bangladesh, Pakistan , Hong Kong, Sri Lanka, and Cambodia) total imported manufactured goods as a percentage of U.S. manufacturing GDP (the U.S. manufacturing import ratio, MIR) was only 9.15%. Since then, despite the U.S. government’s industrial reflow policy, MIR has continued to rise. As of 2018, the rate rose to 13.06%. From 2018 to 2019, the Sino-US trade war broke out. The Trump administration has imposed tariffs ranging from 10% to 25% on a total of 370 billion US dollars of goods from China. This move has significantly reduced the ratio of US imports to China. Among the 14 Asian countries and regions, China is the most important trading partner of the United States. The drop in U.S. imports from China also brought the MIR down to 12.08% in 2019. From 2020 to 2021, the outbreak of the new crown epidemic will cause the domestic production in the United States to almost stagnate, and the United States will increase its dependence on the above-mentioned 14 low-cost Asian countries and regions. MIR will rise to 12.95% and 14.49% respectively in these two years.
  After the outbreak of the epidemic, the Biden administration put more emphasis on building the so-called “supply chain security”, and some American companies gradually began to move their production bases to the United States or places closer to the US market, such as Mexico and Canada. In the primary metals manufacturing industry, 70 percent of chief executives have planned or are considering moving some manufacturing operations to Mexico, according to the latest Kearney Corporate Consulting survey.
did not meet expectations

  Through investigation, it is found that the U.S. manufacturing reshoring policy has played a positive role in promoting employment, inhibiting the hollowing out of U.S. industries, and attracting foreign direct investment (FDI), but it has had little effect in reducing the trade deficit.
  promotion of employment. Job creation is undoubtedly the most important aspect of the reshoring of manufacturing in the United States. Since 2000, U.S. manufacturing employment has shown a clear downward trend. Since the US implemented the industrial reshoring policy in 2009, the problem of the loss of manufacturing jobs has been significantly alleviated, especially in terms of increasing high-tech jobs. The research shows that among the enterprises and occupations that have returned in 2021, the proportion of medium and high-tech enterprises and occupations is 59% and 76%, respectively.
Manufacturing Reshoring and Manufacturing Employment in the U.S.: A Counterfactual Inference

Data source: U.S. Bureau of Labor Statistics. Counterfactual extrapolation: U.S. employment without reshoring of manufacturing.

  However, judging from the published data, the employment promotion effect of the industrial reflow policy has not brought the level of manufacturing employment in the United States back to the level before the financial crisis, which means that it has not yet met the requirements of the US manufacturing revitalization policy.
  Alleviate the “hollowing out” aspect of U.S. manufacturing. From 2000 to 2009, the ratio of the added value of the US manufacturing industry to GDP continued to decline, from 15.2% to 11.6%. After the United States implemented the industrial reflow policy, the downward trend showed signs of stopping. From 2010 to 2021, the ratio will remain between 10.7% and 11.7%. This shows that the industrial reflow policy has achieved certain results in alleviating the “hollowing” of the US manufacturing industry.
  In terms of attracting foreign direct investment (FDI). From 2000 to 2010, the net FDI inflow to the United States fluctuated greatly and did not show a unilateral trend. After 2010, the net inflow of FDI attracted by the US manufacturing industry showed a clear upward trend, rising from US$62.882 billion in 2010 to US$109.267 billion in 2021. The net FDI inflow in 2021 has exceeded the level before the financial crisis (2007) ($102.756 billion). The increase in FDI net inflow stems from the US government’s trade protection and tax incentives for local manufacturing companies, which have played an important role in promoting US employment and manufacturing. According to the Kearney Enterprise Consulting report, in 2021, 71% of FDI inflows in manufacturing will promote employment in medium and high-tech industries.

  reduce the trade deficit. The continued expansion of the U.S. trade deficit has always been a “persistent disease” of the U.S. economy. The U.S. government believes its trade deficit will shrink if manufacturing returns to the United States. However, it is not. From 2000 to 2021, the U.S. trade deficit in both goods and manufacturing products continued to rise, with the trade deficit in goods rising from $466.8 billion to $1,090.7 billion, and the trade deficit in manufacturing products rising from $317.2 billion to $1,066.3 billion. This shows that the US industrial reshoring policy is far from expected in terms of reducing the trade deficit. The fundamental reason is that this policy-based and mandatory industrial reflow policy has distorted the structure of the US manufacturing industry, hindered the increase in the labor rate of the manufacturing industry, and weakened the employment absorption capacity and economic growth effect of the manufacturing industry. Statistics show that, taking 2000 as the benchmark (the U.S. manufacturing labor productivity rate is 100), during the 20 years from 2000 to 2020, the U.S. manufacturing labor productivity showed a rapid upward trend before the 2008 financial crisis. From 2010 to 2011, it reached a peak of 145, and then continued to decline to 137 in 2020.

On November 15, 2021, US President Biden officially signed the “Infrastructure Investment and Employment Act” at the White House.
Impact on China

  As China is an important trading partner of the United States, the US manufacturing reflow policy and the ongoing industrial chain restructuring measures will inevitably have a certain impact on China.
  The U.S. industry reflow policy has attracted some high-tech companies to invest in the U.S., resulting in a supply chain transfer effect. For example, global high-end semiconductor industries such as TSMC and Samsung have already increased capital and built factories in the U.S., and it will be more difficult for Chinese companies to cooperate with them in the future. At the same time, the United States has frequently introduced new regulations to strengthen export control to China and implement its technical parameter limit standards internationally, making it more difficult for Chinese companies to purchase related products and objects. For example, the new regulations on semiconductors issued by the United States in October this year caused the A100 and H100GPU chips of Nvidia series products to exceed the technical parameters of the US semiconductor export control, and can only be replaced by A800 chips. It is not ruled out that the United States will further lower the technical parameters and restrict the export of a wider range of key products.
  While implementing the industrial reflow policy, the United States also intends to reduce its dependence on Chinese manufacturing (mainly general trade products), so that the share of Chinese-made products in the US market is partially replaced by other Asian countries. From 2018 to 2021, the proportion of Chinese-made products in the overseas imports of the United States will drop from 24.3% to 20.3%, and the proportion of other 13 low-cost countries and regions in Asia will rise from 12.6% to 17.4%. Before 2018, the proportion of total US imports from China to the above-mentioned 14 Asian countries and regions remained above 60%. Since then, due to the impact of the Sino-US trade war and the new crown epidemic, it has dropped to the lowest point of 48% in the first quarter of 2020. , and then quickly rebounded to 60% in the second quarter of 2020 due to China’s rapid control of the epidemic. However, starting from the third quarter of 2020, the proportion continued to decline. As of the fourth quarter of 2021, this ratio has dropped to 55%. In terms of industries, primary metals, textiles, and machinery (except electrical) saw the most significant declines. Among them, in 2021, the output of textile products in China will drop by 38%, while the output of other 13 low-cost countries and regions in Asia will increase by 26%. Computer and electronic products also decreased to a certain extent.
  As time goes by, the impact of the U.S. manufacturing reshoring policy and industrial chain restructuring measures on China will further emerge. China should pay close attention to it, carefully study and judge it, and issue corresponding countermeasures in a timely manner.