Bringing the Manufacturing Back to America: Reasons, Consequences, and Potential Benefits for Businesses

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The US is still considered to be one of the most powerful economies in the world. Yet, every economist will tell you that holding leading positions without boosting the scales of manufacturing is very challenging for the country. Indeed, over the passing decades, the situation has drastically changed and now the United States cannot be considered a global factory anymore. For many businesses, it does not seem to be important since they care about their revenue. However, recent evidence shows that moving manufacturing back to America is a relevant issue for enterprises.

Y Combinator, which tracks all the upcoming business trends, suggests that American businesses should come home if they are willing to elevate their future presence from new emerging solutions. Continuing our series of articles dedicated to Y Combinator startup ideas, we will delve deeper into this topic to explain to you why this shift happened and what are the reasons for changing it.

China Becoming the World’s Workhouse

It goes without saying that Chinese products are literally everywhere. You do not have to look for any specialised product. Just take a glimpse at the label on any of your gadgets and there is a great probability that you will find the following writing: “Made in China”.

China can be considered the global warehouse of the 21st century. It does not mean that all the products we use are made by Chinese companies. No, but it does mean that the vast majority of those products are made by factories of US or European companies located in China.

For many years, there was a myth that anything made in China is cheap and, therefore, of poor quality. Maybe, this myth was relevant several decades ago but definitely not today. Chinese factories of global companies know how to manufacture high-quality and popular products, and the cheap costs for this manufacturing process are not the only reason why many US companies have been moving their manufacturing to China. We have at least 3 other important reasons.

Wages

Let us calculate together. In 2024, around 1.41 billion out of all 8.1 billion live in China. What does it mean for the local economy? It means that there is a huge supply of workers, which also means that the demand for those workers is low. Low demand for the workforce causes low wages because, simply speaking, it will be easy to substitute a worker who does not want to work for that wage with a worker who does. 

The huge numbers of population is not the only reason for the low demand for workers. We also have to consider the quality of its population, as in the previous century, most Chinese people lived in rural areas and were willing to move to quickly-growing industrial cities even for low wages. 

It is also worth considering that Asian countries and China are no exception, and are known for high rates of child labour. This issue was relevant for the UK back in the 19th century when it was considered the world’s factory. And the reason for such awful trends is obvious — children can work with almost the same productivity but for lower wages. Luckily, the situation is changing but it still has a huge impact on Chinese manufacturing and the economy in general.

Business Ecosystem

Industrial production is not a solitary process; it relies on a network of suppliers, manufacturers, distributors, government agencies, and customers. This network involves both competition and cooperation. China’s business ecosystem has significantly evolved over the past 30 years and the results of this change have appeared to be quite important for US companies.

Let’s take a company from the industry of electronics, like Apple, to make the example more clear. China borders Taiwan, which is the biggest manufacturer and supplier of electronics. Despite the political tension, this geographical position allowed China to transform some of its cities into global hubs. That is why it is financially beneficial to locate its manufacturing process in one of those hubs where supply and workforce expenditures are minimal.

Compliance Standards

Manufacturers in the West must adhere to certain basic guidelines regarding child labour, involuntary labour, health, and safety regulations, wage laws, and environmental protection. While improving the overall life quality in Western countries, those restrictions impose some challenging limitations for manufacturers. Chinese factories are known for not complying with most of these laws and guidelines.

In the past, Chinese factories have employed child labour, enforced extended work hours, and neglected to offer workers compensation insurance. Additionally, many factories don’t adhere to numerous ecology protection standards, which is evident from air pollution rates in the country. Luckily, over the last 5 years, PM2.5 air pollution levels in Beijing dropped from 50.7 to 38.98. 

Why is it Important to Bring Manufacturing Back to America

Bringing manufacturing back to America is important not just because Y Combinator said so. Consider at least those two reasons that motivate US companies to shift the manufacturing home.

Geopolitical issue

The growing leadership of China in the global economy is a big issue for the US not only for business reasons. That is why the US government has already started taking some important steps to rebuild its manufacturing and bring it back to the countries. For example, according to the CHIPS and Science Act, $52.7 billion will be allocated for semiconductor research, manufacturing, and workforce development. The Inflation Reduction Act is promoting intensives for US-based manufacturers of electric vehicles, which should not only strengthen the economy but also resolve a number of severe clean energy issues.

It is evident that all these acts are dedicated to increasing US-based manufacturing in several important sectors. The issues are becoming even more relevant due to the geopolitical tension between the US and China, and it is obvious that the US government is trying to boost the country’s economy in order to make it less dependent on China so that it does not lose its position as the world’s global leader in future geopolitical crisis periods.

Innovation

Of course, bringing manufacturing back to America is not just a geopolitical necessity for the US government. It seems to be not a big necessity for business as offshore manufacturing is often less expensive. However, what everyone agrees on is that further growth in any sector is important without innovations. And empirical data say that innovations are more likely to occur in the country when potential innovators actually work in this country.

Simply speaking, there is a bigger chance that some breakthrough will be made if this breakthrough is necessary in terms of boosting a manufacturing process located in the closest proximity to the area of development activities. This will both improve the product’s quality and make the sector more competitive, leading to its further development. This is a strategic point for businesses. Knowing this, manufacturers have to decide whether they want cheap conditions abroad or those conditions where they can bring innovations and move to higher levels.

Which Companies to Follow

Strategic benefits from moving back to America are not just theoretical assumptions and are not caused solely by the trade war. During the pandemic, US manufacturers saw how vulnerable supply chains might actually be, and for that and some other reasons they are now investing money to relocate production processes with minimum loss in the future. Recent data show that the number of US companies that have already moved from China is exceeding all expectations. Almost 80% have already made such a shift, and at least 15% are considering it as a result of increasing tariffs and global tensions, a great share of which are caused by the Russian invasion of Ukraine.

If manufacturers need examples to follow, they can just consider that General Motors has already announced its $7 billion investments that will be made to build four plants in Michigan. Intel is also going to invest an impressive $12 billion in order to open two factories near Phoenix in 2024. This move will obviously motivate small companies to relocate their production to the US as this will allow them to take advantage of more beneficial supplies of chips for computers and cars. Steelmaking factories in Osceola, Arkansas, will be opened by US Steel, and this move will cost the company $3 billion. 

All these moves by some of the largest and most influential US companies will have a huge influence on the world’s global economy. Not only will they modify supply chains, but they will also create more job opportunities in the country and make a sufficient ground for further innovations in respective sectors.

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