Update from Reshoring Initiative
The efforts of the Reshoring Initiative are of particular interest to the wire harness industry. Our industry presents some comparatively low lying fruit for the reshoring efforts of US manufacturing. The Reshoring Initiative is a nonprofit organization dedicated to bringing manufacturing jobs back to the United States by helping companies assess the total cost of offshoring. Their goal is to shift the collective thinking of ‘offshoring is cheaper’ to ‘local reduces the total cost of ownership.’ Harry Moser, the organization’s Founder and President, recently spoke with WHN to update his efforts.
Harry started by pointing out some facts that make our trade deficit particularly menacing.
Harry: Typically, when a country has a trade deficit like we have, their currency gradually declines. They get more competitive, and pretty soon the trade deficit goes away. But that has not happened for the US because we are also the reserve currency, which holds up the dollar. So, we are a great place to be a bank, but a horrible place to be a manufacturing company.
Another way of looking at this is our self-sufficiency, or the percentage of goods we make versus those we import. We currently produce less than 50% of what we consume. So, if there’s ever a crisis; if there is ever the inability to import, if our dollar does collapse and things from offshore get crazy expensive; we don’t have the ability to produce even 50% of what we consume. It’s just not a long-term viable solution.
WHN: Aside from the obvious, what are the advantages of balancing the trade deficit?
Harry: The benefits of balancing the trade deficit are huge. I’ve seen studies that the budget deficit would be cut in half if we eliminate the trade deficit.
We would also restore the middleclass. Everybody complains about income inequality, which is largely due to the loss of manufacturing jobs. Balanced trade would bring back the small to medium size corporation – the family owned job shops that should be the core of our manufacturing but have been weakened so much.
We would also reduce global pollution. When you make things in China, the electricity is dirty, the factories pollute more and then you have to drag this stuff half way across the world.
What we would see is a virtuous cycle where, as we reshore, companies increase their capital utilization. As that happens, they have the money and need to invest, and when they invest their productivity goes up. When that happens, they become more competitive and are therefore able to reshore more. So, by starting that cycle and continuing that cycle, the US will win or, at least, stop losing. (Figure 1).
Figure 1: Reshoring/Productivity Cycle
A lot of pundits will say, “forget all this, few jobs can be brought back.” In 2017, reshoring plus FDI (foreign direct investment) brought back 171,000 manufacturing jobs.
WHN: Wouldn’t the necessary increase in automation wipe out any increase in jobs?
Harry: No. We can have both productivity and growth in manufacturing jobs. You don’t have to choose between those two. Often, I read that robots are going to take all of our jobs and that we should tax them. Bill Gates says that. They reason that everybody will be sitting around with nothing to do, so we need money to give to them. In reality, we will lose more jobs to Chinese automation if we do not automate, then we will lose to US automation if we do automate. So, it’s essential to automate. We will be better off, with more jobs.
WHN: It sounds like a herculean effort. How can the US do it?
Harry: The reality is that the US is on a tilted playing field proven by our year after year roughly seven hundred-billion-dollar goods trade deficit. The Reshoring Initiative did a recent research project with Plante Moran, one of the largest consulting and auditing firms in the country. It turns out you only have to bring back about 20-25% of what’s being produced offshore to completely balance the trade deficit! This is where the Reshoring Initiative comes in. We can help bring jobs back today and level the playing field for tomorrow.
To do this, we have the TCO Estimator Tool (see full description at the end of this article). It’s free online for harness producers to use, and it’s available on our website (reshorenow.org). If you’re in purchasing, you can use it when buying. If you’re in sales, you can use it for selling. If you work in a job shop, you can use the TCO Estimator for selling against imports by helping your customer understand the math. And assuming Chinese wages continue to go up at the rate they have, within two or three years, the total cost of bringing goods in from China will be even higher.
A gleaming example of where we did this is a with a company called Morey Corporation in Woodridge IL. They are supplying printed circuit boards (PCBs) for heavy equipment [OEM’s]. They came to me about a year and a half ago as they were about to lose an order from their best US customer to China over piece price. The CEO and I did the TCO analysis. He took it to his customer and showed them that even though Morey’s price was higher, the total cost of ownership was lower. The company reports this was key to saving a $60M dollar order by helping the customer see the math correctly. We are here to help you do that.
The Reshoring Initiative has also developed a program to help facilitate reshoring, and it’s called The Import Substitution Program. Let’s say you’re making harnesses, and you’re losing orders to imports. We can tell you which companies (importers) are bringing in the largest quantities of the kind of harnesses you make. We can tell you how much they are bringing in and the approximate unit price, and then train you to go after this business. You can pick the ones that you can make for maybe 10-15% above the offshore price, then use the TCO tool to show them they are better off buying from you. Once again, we are here to help you do that.
WHN: What else can we as an industry do to help in the reshoring effort?
Harry: Support a policy tide that lifts all US industries. One that gets the US price competitive with offshore. Right now, Trump’s tariffs have helped the steel and aluminum industries, but its hurt the people who use steel and aluminum. So, its arguable whether its helped the country at all. We want a policy that uniformly lifts all industries – the steel industry and steel users, for example. We have put together and sent to the administration the Competitiveness Tool Kit. We have identified a series of policies, for example, getting our skilled workforce to be as good as those in Germany and Switzerland. We believe that alone is worth about 5% on price advantage.
Next, get the corporate tax rate down to 15%. We are already about 2/3 of the way there from the previous 35%. Also, we need to have a value-added tax (VAT). The rest of the world has a VAT and we don’t. When we ship our product to them, they put a 15% tax on us. When they ship their product to us, they get a 15% credit. We are thus fighting with our arms behind our back. We also need to get the dollar down by 20%.
If you put all those things together, it would reduce our pricing by about 50%, but we don’t even need to come down by 50%. If we wanted to cut the goods deficit by 60% for example, which would be about 3 million manufacturing jobs, we would only need to reduce our price by about 5% to 20%, depending on the product. Within that range, using the TCO model, we can easily show we are a more profitable manufacturing option.
The Total Cost of Ownership (TCO) Estimator
Most companies make sourcing decisions based solely on price, oftentimes resulting in a 20 to 30 percent miscalculation of actual offshoring costs. The Total Cost of Ownership Estimator® (TCO) is a free online tool that helps companies account for all relevant factors — overhead, balance sheet, risks, corporate strategy and other external and internal business considerations — to determine the true total cost of ownership. Using this information, companies can better evaluate sourcing, identify alternatives and even make a case when selling against offshore competitors.