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U.S. companies bringing production back home

By Larry Avila • Post-Crescent business editor • April 22, 2010

Mike Klonsinski isn't ready to call what he's been reading about a trend, but he hopes it's true.

The latest buzz in manufacturing circles is "on-shoring," where U.S. companies are moving manufacturing work from overseas back to their domestic sites.

As the executive director of the Madison-based Wisconsin Manufacturing Extension Partnership, it has been his job to coordinate efforts to help the state's small- and mid-sized manufacturers work more efficiently and keep jobs from going overseas where labor historically has been cheaper. WMEP's work and that of similar organizations, may be starting to bare fruit, which fuels some optimism for Klonsinski.

"It's hard to call it a trend without data to support it," Klonsinski said. "We're just relying on anecdotes … but there are signs that some manufacturers are doing more in-sourcing these days than outsourcing."

Brian Jacobsen, a capital markets strategist with Wells Fargo Advantage Funds in Menomonee Falls, said years of implementing lean manufacturing or efficiency principles into production is paying off for U.S. manufacturers.

"Productivity of U.S. workers is more cost effective, which gives companies a competitive advantage and many are seeing they can make more product here for the dollars they spend versus what they can get overseas," Jacobsen said.

Domestic again

General Electric is an example of the in-sourcing movement. GE is moving some of its appliance manufacturing out of China to Appliance Park in Louisville, Ky.

In GE's case, spokes-woman Kim Freeman cited lowered wages here, along with tax credits offered by the state and more control over production and development as reasons to move some production to Kentucky.

By 2012, GE will add production of an automatically energy-efficient washer and dryer pair expected to add 830 jobs to its 4,100 employees in Louisville.

U.S. manufacturers can directly compete with China on costs such as packaging, freight, quality control and raw materials, according to the National Tooling Machining Association, a trade group of 2,000 machine shop owners based in Fort Washington, Md.

Once there was a "huge push to drive down costs by finding the lowest-cost source that can meet specifications," said Brian Bethune, chief U.S. financial economist at IHS Global Insight, a consulting firm based near Boston.

In China, Brazil, and elsewhere over the years, however, companies have found that "plugging some of these suppliers into your supply chain isn't as easy as they thought," he said.

Challenges in manufacturing offshore are legion, Bethune added. Infrastructure can be undependable, including frequent electrical brownouts in some regions of China. Manufacturing is often plagued by quality problems, rendering products unfit to sell in more sophisticated markets. Language and cultural barriers pose more difficulties. Negotiating governmental expectations and hurdles, especially in China, is a huge issue.

Klonsinski said transportation costs to ship goods from Asia to the U.S. remain high and are constantly rising.

"When you're talking about moving goods 4,000 miles versus 1,000 miles costs come into play," he said. "Distance also plays into time of delivery. When you're shipping by boat, you're looking at maybe six weeks or more."

Remaining cautious

Kent Mortensen, an equity analyst with Thrivent Financial for Lutherans, an Appleton-based insurance and investment services company, also is familiar with the emergence of in-sourcing in domestic manufacturing but is uncertain if it's a growing movement.

"I'd suspect it is happening, but I wouldn't say it's a large trend, but it is interesting that we are hearing about it," he said.

Mortensen said U.S. companies today are focused on getting established in emerging markets, including China, because of growing consumer demands from those regions.

"Most of the time, U.S. companies just want to get a share of those growing markets," he said. "U.S. companies want to be in China today, not necessarily because of cheap labor, but to serve the fastest- growing market in the world today."

Mortensen said when China was in the early stages of its industrial ramp up, affordable labor was plentiful. But that isn't the case today.

"The days of going (to China) to find large pools of (cheap) labor are fading," he said.

Larry Avila: 920-993-1000, ext. 292, or lavila@postcrescent.com. Gannett News Service contributed to this report.

USW Updates and Background on 421 China Tire Case

The United Steelworkers (USW) April 20, 2009, filed a major trade case at the U.S. International Trade Commission, challenging the flood of imported consumer tires from China that have led to thousands of job losses and a growing number of plant closings throughout the United States. Some of the workers affected are shown in the above photos:  USW local union leaders who produce consumer tires....

Truck Tires from the People's Republic of China On July 9, 2009, the United States International Trade Commission (USITC) submitted a report to me that contained a determination pursuant to its investigation under section 421 of the Trade Act of 1974, as amended (the "Trade Act"), that certain passenger vehicle and light truck tires from the People's Republic of China (China) are being imported into the United States in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of like or directly competitive products. By proclamation I have issued today (the "proclamation"), and after considering all relevant aspects of the investigation, I have proclaimed actions of the type described in section 421(a)of the Trade Act. I have determined that the most appropriate action is application of an additional duty on imports of certain passenger vehicle and light truck tires from China, as defined in paragraph 4 of the proclamation. I have also determined that such action shall be in effect for a period of 3 years. Specifically, I have proclaimed an additional duty on imports of the products described in paragraph 4 of the proclamation, which for the first year shall be in the amount of 35 percent ad valorem above the column 1 general rate of duty. For the second year, the additional duty shall be in the amount of 30 percent ad valorem above the column 1 general rate of duty, and in the third year, the additional duty shall be in the amount of 25 percent ad valorem above the column 1 general rate of duty. In order to assist workers, firms, and their communities that have been or are affected by the market disruption, I direct the Secretary of Commerce and the Secretary of Labor to expedite consideration of any Trade Adjustment Assistance applications received from domestic passenger vehicle and light truck tire producers, their workers, or communities and to provide such other requested assistance or relief as they deem appropriate, consistent with their statutory mandates. The United States Trade Representative is authorized and directed to publish this memorandum in the Federal Register.

Don't buy into myths saying Buy-American rules are bad

BY SCOTT PAUL • February 12, 2009

The misinformation campaign against the "Buy American" requirements attached to Congress' economic recovery legislation is reminiscent of the shrewdest form of propaganda. It's laced with red herrings and glittering generalities but devoid of facts.

To hear critics of "Buy American," you would think such requirements violate our trade obligations, will ignite a trade war driving us into deep depression, and may cost us jobs. Let's set the record straight.

For more than 70 years, buy-American requirements have directed tax dollars to the purchase of American-made manufactured materials and goods for infrastructure projects, and they are fully consistent with trade obligations, which the Senate once again acknowledged through an amendment passed last week.

Existing buy-American requirements have never been successfully challenged in venues such as the World Trade Organization. Why? The United States, like most other industrialized nations, has largely reserved the right to spend its tax dollars domestically without oversight from international bureaucrats.

Some critics have alleged that enacting buy-American requirements would ignite a trade war, reminiscent of the Smoot-Hawley Tariffs of the early 1930s, which many economists believe extended and deepened the Depression. Smoot-Hawley was not wise; it raised U.S. tariffs on thousands of imported products, and it did lead to retaliation.

Here's the difference: With "Buy American," we're talking about tax dollars, not tariffs, and we're talking about government spending, not the free market. Trade is shrinking now, but collapsing economies, not new trade barriers, are the reason. "Buy American" will expand trade opportunities by generating increased American spending, some of which will inevitably be spent on manufactured imports. The global trade regime in place now makes raising tariffs on covered goods virtually impossible.

You might also have read that every economist believes "Buy American" is a bad idea. Wrong again. Many notable economists, such as former Labor Secretary Robert Reich and Business Week's Michael Mandel, believe it is important to do everything possible to stop something called leakage. That's when tax dollars geared toward stimulating domestic economic activity end up being spent overseas, a good example of which was demonstrated by Americans who took their 2008 stimulus rebate checks to big box stores and bought imported TVs. They stimulated the economy of China. With "Buy American," you prevent leakage, because government spending is directed to domestic manufacturing and workers.

Will this shut the United States out of foreign markets? Every nation wants unfettered access to the U.S. market but is reluctant to grant reciprocity. U.S. exports will increase when our government insists countries like China honor trade commitments, stop subsidizing industries, value their currencies fairly, and protect U.S. intellectual property. In fact, nations such as Russia, China, Brazil, India, Mexico, Canada and France have far more restrictive procurement regimes than we do. If we eliminate buy-American requirements, the playing field tilts away from American workers and manufacturers even more than it does now.

Finally, the allegation that buy-American requirements may cost U.S. jobs has been shopped around. This claim is false. On infrastructure spending alone, sourcing exclusively from American-made materials creates 33% more manufacturing jobs, according to a study by the Political Economy Research Institute at the University of Massachusetts-Amherst. The American manufacturing base generates four to five new jobs for each manufacturing job created, precisely the types of jobs we need right now.

SCOTT PAUL is executive director of the Alliance for American Manufacturing, a labor-management partnership of several leading U.S. manufacturers and the United Steelworkers. Write to him in care of the Free Press Editorial Page, 615 W. Lafayette, Detroit, MI 48226 or at oped@freepress.com.