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Yves here. Articles, particularly from individuals with important public roles, can often say more than then intend to. This piece from Tom Conway, the international head of the United Steelworkers Union, uses the logjam at California ports to call for making far more of US consumed goods here at home, in the interest of domestic security.
The dog whistle of “security” happens to be true. The US would come screeching to a halt in a few months at most if China were to play hardball and stop sending Americans stuff, such as pharmaceuticals, ascorbic acid (an essential food preservative) and chips, for starters. But the other reason for invoking “security” is that the Federal government has consider powers under various defense emergency statutes, which oddly were not invoked when Covid was acute in 2020.
However, as much as it clearly makes sense, for many reasons, to retool the US into again being more of an autarky, as they like to say in Maine, “You can’t get there from here.”
As we explained in reacting to a post by the hedge fund manager and sometimes writer Doomberg, who was forcefully calling for a great unwind of America’s extended and fragile supply chains, too many incentives run the wrong way, even before you get to the wee problem of “This is really hard” and our putative leaders aren’t into that sort of thing. From our post, Will the Supply Chain Crisis Lead to More Onshoring?
…it has taken 40 years to create tightly coupled supply chains that include substantial foreign sourcing, both of raw materials, intermediate product, and often a great deal of sub-assembly.
It doesn’t do any good to get more raw materials or inventory, even if you had someplace to put them, if you don’t also have the equipment and direct labor and systems (mechanical and IT) and skilled supervisors and plant managers to keep everything moving and prevent equipment and safety disasters. How long would it take to design and build a new factory, or an expansion of an existing factory? You have to get approvals, contract to have the structure built, buy equipment and have it delivered (oh, again probably from overseas, putting you back in the crosshairs of the ports/shipping mess), hire and train workers, shake down the operation…even assuming you could find seasoned operations managers who were good enough to manage a startup (way harder than overseeing an established operation)….
Let’s look at other practical issues. Will we have rare earths mining in the US any time soon? We let China have that not because rare earths are actually all that scarce, but mining and processing are really nasty. But there is also specialist know-how, and we’ve ceded that too…
But let’s get back to the biggest reason there is no way, no how we will see a massive wave of onshoring, no matter how bad supply chain breakdowns get: management incentives and financialization.
Look at some of the steps I set forth above. Even if a very brave company got religion and decided to embark on that path, what would it entail? Massive up front expenses, not all of which could be capitalized. That means trashed earnings until the new reshored company is humming, which is years down the road. And would retained earnings be enough to pay for all the investment? If not, that means borrowing or issuing stock. Gee, do you think investors would be keen about that?
On top of that, the current leadership would almost certainly be unable to execute a change program of this scale. Think they are prepared to sign job death warrants?
More generally, giving up on supply chain dependence is a huge negative for executive and manager pay. In many if not most cases, its real purpose was to transfer income from lower level workers to the executive and mid manager ranks by reducing hourly-type labor content and increasing risk. Both the (often illusory when properly risk adjusted) savings and the increased enterprise complexity justified higher pay.
And it is not as if one can expect political support for this type of shift. Moving production on shore will increase costs, if nothing else the need to recoup the considerable business restructuring and investment costs. Making voters pay more for stuff, or worse, asking them to sacrifice for any reason other than war, is not a popular proposition.
So while I applaud Conway’s problem statement, bringing significant amounts of production back to the US would require a fundamental restructuring of the US economy. Too many at the top are just fine with the way things are now.
By Tom Conway, the international president of the United Steelworkers Union (USW), Produced by the Independent Media Institute
Workers at the Sibanye-Stillwater complex in Montana mine minerals used to fight cancer, produce lifesavingsurgical instruments and manufacture the wind turbines and solar panels essential for the clean economy.
They touch so many facets of American life that Ed Lorash, president of United Steelworkers (USW) Local 11-0001, considers their work essential to national security.
Lorash knows that without strong supply chains stretching from mining to manufacturing, the nation is vulnerable, not just to a shortage of consumer goods but also to any number of crises from pandemics to natural disasters that could undermine America’s safety. And only revitalizing an industrial base decimated by bad trade will eliminate the country’s dangerous dependence on foreign products and protect America’s freedom.
“It keeps your enemy at bay,” Lorash said of a robust manufacturing sector. Foreign producers can cut off supplies for economic or political reasons, he noted, or raise prices on a whim.
“I just think we really need to look at making things here,” he said. “Then, if we get a surplus, we can sell it.”
Over the past quarter-century, greedy corporations closed hundreds of U.S. manufacturing facilities and offshored more than a million jobs to countries with low wages, weak labor laws and poor environmental standards.
But that wasn’t the only blow to America’s security. China and other competitor nations compounded the damage by dumping unfairly traded goods in U.S. markets, killing millions more jobs and further decimating the domestic manufacturing base.
COVID-19 threw the damage into sharp relief. Hollowed-out supply chains left the nation unable to produce the face masks, ventilators and other medical equipment essential for fighting the pandemic.
Next, shortages of semiconductors, resulting from pandemic-related manufacturing slowdowns overseas, disrupted the U.S. auto industry and decimated inventories of cars and trucks.
America once made 37 percent of the world’s computer chips, used not only in vehicles but also in electronics and myriad other high-tech products. Now, the U.S. accounts for only 12 percent of global production and buys much of what it needs from overseas.
The dozens of huge cargo ships floating off the West Coast provide yet another stark reminder of Americans’ overreliance on overseas products.
So many of those vessels—laden with billions of dollars in foreign-made clothing, electronics, furniture and other goods—converged on California ports at the same time that they created an unprecedented traffic jam.
As the ships take turns docking and unloading, millions of Americans continue to wait for goods and supplies they need to run their businesses, operate their households and care for their families.
Stuck somewhere in the supply chain are motors that Sibanye-Stillwater needs for Jeep-like vehicles used to transport miners underground. Without the motors, the machines sit idle.
“They’re small,” Lorash explained of the vehicles. “They’re durable. They’re very low-emission,” he said, and critical to responsible mining.
Ports have moved to around-the-clock operations and taken other steps to ease the congestion, but that does nothing to address the underlying factors that caused the gridlock in the first place.
President Joe Biden has taken initial steps to build back the nation’s manufacturing base and patch supply chains, such as directing new investments in the manufacturing of essential drugs, batteries and minerals.
The impending national infrastructure program also will help to reinvigorate manufacturing by generating demand for steel, aluminum, glass, paint and other products.
But only long-term investment—and continuous stewardship—will provide the industrial base and supply lines necessary for fighting diseases, bouncing back after natural disasters and meeting the daily challenges of a global economy.
That means locking down every link in supply chains and ensuring, for example, that America can produce not only platinum and palladium but also the steel, aluminum, fiberglass and other parts needed for surgical instruments, wind turbines, solar panels, autos, electronics and other finished products.
“It’s all so interdependent,” noted Matthew Bashaw, president of USW Local 01-01494, which represents about 65 workers who make citric acid at the Tate & Lyle facility in Dayton, Ohio.
The issue isn’t only about ensuring the availability of goods. As Bashaw pointed out, controlling supply lines end to end also means maintaining the quality and purity of goods Americans use and consume.
He and his coworkers follow strict on-the-job safety standards and meticulously safeguard the quality of their products, including a food-grade variety of citric acid used in items like soft drinks and macaroni and cheese.
But Bashaw noted that other countries tried to undercut domestic producers over the years and asked, “What are their regulations? Are they meeting standards consumers look for in their products?”
The platinum, palladium, copper, silver and nickel that USW members at Sibanye-Stillwater produce will become ever more important as the nation makes more electric vehicles and increasingly grows a clean-energy economy.
Lorash knows his coworkers are up for the challenge of supplying the country’s needs. He wants to see a manufacturing revitalization so that union workers at other companies have their own opportunities to help build a stronger, safer America.
“Keep it at home,” he said.
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A typo in the first sentence, quite amusing one.
fixed it. Thanks!
The national security apparatus by now should be revealed as uninterested in national security.
They ostensibly did nothing during covid and they’re doing nothing now when Americans can’t get materials or, as recently shown, pharmaceutical products. Yet when we pulled out of Afghanistan they called up their agents in mainstream media and pitched a fit.
The intel agencies are interested in one thing: themselves. They’re a creaking bureaucracy, just like most institutions these days, with no belief in their own mission. They seek to perpetuate themselves absent any sense of responsibility.
[a softball, fat and lingering, right over the middle of the plate] How do you describe spooks so well?
Something I don’t see in the article is the what the work force learns doing these manufacturing jobs. People in these manufacturing settings see how things work and figure out how to do things better. Didn’t Intel, HP and apple start in a garage? Where did these men get their start?
In the nuclear era, nationalism is poison. It is global security that should be the focus of strategic initiatives. Unfortunately, politicians take the shortest route to power, and that is currently hyper-nationalism. MAGA is just myopic selfishness that is irrelevant to the global issues of climate change, job automation, and nuclear war. In the US, the “national defense” mantra was helpful in funding student loans and building the interstate highway system, but it is worse than useless if it drives America into a foolish zero sum game with the rest of the world.
irrelevant to the global issues of climate change, job automation, and nuclear war.
Cherry picking much? Why not add financialization, inequity (not to be confused with iniquity even though that is also relevant), and an out of touch global elite that insists that other people need to make shared sacrifices so the rich don’t suffer any constraints to their rapacious lifestyles?
Do you prefer “america is already great and we can coast on that pretty much forever”
Another Free Trade hasbarist heard from.
The path to onshoring is protective tariffs. Not saying this is a good or bad idea, but tariffs that gradually increase would be a step. Requiring American companies to pay their half of FICA on their foreign workers would be a step. It took 40 years to get here. We can probably get back in less time.
With respect to rare earths, We have large, if in some cases closed, mines. We are importing the technology we do not have, as it happens from Malaysia, who do have it (research LYSCF).
Tariffs as well as subsidies and “buy American”. The US has spent decades bullying other countries to open their markets to US exports and investment. If the US now tears up all these treaties, it will be subject to reciprocal tariffs and investment restrictions.
As well it should. That is how we destroy the Free Trade System and defeat the International Free Trade Conspiracy. Equal Protectionism for all.
re: “It took 40 years to get here. We can probably get back in less time.”
i would venture a guess that most of us will be dead before we get back…
There was a Foreign Policy article last year called “The Coronavirus Pandemic Has Killed America’s Reputation for Competence” and it made the point that a pillar of American strength was its competence in getting things done but that this was breaking down. At the time you could say that perhaps that it was just the effect of a pandemic whose intensity has not been seen in about a century. Thing is, this lack of competency is spilling over into other areas such as the collapse of Afghanistan and now with the supply chain. But when you get down to it, managing supply lines is the bread and butter of each and every country. And the loss of competency on display may undermine those who are supposing to be the people that run the country but it is hard to say what the knock on effects will be-
https://foreignpolicy.com/2020/03/23/death-american-competence-reputation-coronavirus/
I believe America Competence died with the death of the family farm culture.
We’ve witnessed many companies (Amazon) lose money for years on end. Didn’t stop investors. I can’t help but think the ponzi schemers couldn’t come up with ways to make manufacturing drugs or chips or electric power transformers or even beanie babies here lucrative if need be. Didn’t we do things like tell Japanese auto makers if they want to sell in the U.S. they have to make some in the U.S.?
Our number-one supplier of goods, China, is also feeling insecure. Xi just passed down a preparedness edict telling the country to stockpile the necessities. I’m assuming food mostly. Has the California bottleneck put a big dent in our exports of food? I thought grain went out of Seattle mostly. So other ag products as well. I remember ages ago they (Goldman Sachs et.al.) were talking about dredging Humbolt Bay and doing another deep water port in California. With access to transcontinental freight. That didn’t fly. I had the feeling that even back then, it was in the early 2000s I think, we were looking for ways to slow the economies of the world. Not as easy as it sounds apparently. It might take us a decade to get back up to speed manufacturing the things that are essential, but considering how easy it is for a sovereign nation (Mexico) to rewrite its constitution to eliminate unwanted trading partners (and often we are the biggest unwanted partner), it might be very timely to get going on the things we will need to navigate the future.
From a global political/imperialist perspective, Canada is US’s closest and dearest partner, so Canadian rail/ocean ports grain complement those of the US. The US-Canada rail network is effectively a single unit that is increasingly also incorporating Mexican railroads. British Columbia’s rail/ocean port at Prince Rupert (pop. circa 12,000) has been rapidly expanding recently. If grain-export capacity became an issue, Canada could also expand the other existing rail ports on its west, east and north coasts.
When France fell in 1940, England was rather suddenly cut off from wristwatches and precision instruments made in Switzerland, both items being of great importance in war.
We’re looking at potentially being cut off from tens of thousands of items, some of great import-others not so much.
How will we cope?
The “Can’t get there from here” phrase is likely NOT FROM MAINE. It was popularized in the 1950-60s by two comics who were not from Maine, but pretended to be, via the alter-egos/pseudonyms “Bert and I”. https://en.wikipedia.org/wiki/Bert_&_I
It would be interesting to lay out a plan on out how US Manufacturing could be repatriated while maintaining profitability.
It grew organically over about 100 years, and was exported over about 40 years.
Is there a profitable path to repatriate manufacturing?
Rigid militant belligerent protectionism. Zero Free Trade in either direction. And admit it will take decades and any new industrial ecosystem will be a much smaller survivalist industrial ecosystem than the one the International Free Trade Conspiracy took away from us and destroyed.
The National Security dog-whistle does indeed happen to be true. I wonder why it has not suggested to someone in the Department of Defense that u.s. saber-rattling and provocations of China might not be such a great idea.
I’m experiencing remorse for not following the sage advice of many of you several months ago regarding large appliances and the supply chain. “If you need a large appliance, get it NOW!” (Paraphrased) I have a couple of very old appliances and I like it that way, however, my little old Frigidaire/Electrolux (Canada) dishwasher shall meet its remaker after over 25 years. The prices of a new one aren’t just astronomical, the delivery and installation are almost half the amount of the appliance. As for where that appliance is made, good luck sussing that out. Many claim “American Made”. But what that means is up discussion. Here are the new rules. My eyes are a tad glazed over.
https://www.investopedia.com/what-does-it-mean-to-be-made-in-america-5097274
Here’s a site listing companys’ products made in USA*.
https://americansworking.com/
*may include foreign made materials or components.
The only way to achieve the major restructuring of American society and politics needed to gain permission for getting a solution to the re-shoring problem would be for the pro-reshoring side to either win a civil war which forces the anti-reshoring side into unconditional surrender, or win the Moral Equivalent of civil war which can achieve the same thing over a longer time frame.
There will never be a “consensus” over making reshoring possible until the pro-reshoring side can crush-kill-destroy the anti-reshoring side.
Here is a demonstration of the attitude the pro-reshoring side will need to apply.
https://www.youtube.com/watch?v=HyGxJLCG6qw
The concensus for years now and recently reinforced by MBAs’ is that the USA will never again have a profitable manufacturing industry. Manufacturing jobs were joyfully exported to Asia and millions of US workers were laid off. There was little evidence of a backlash physically or politically. In a country where most houses have a firearm on the mantlepiece and another under the bed it is surprising that nobody uses them except to inflict damage on each other. Most of my impressions come from US print media, I have seen wrap ups of daily violence on Buffalo TV but it was so repetitous that I stopped watching decades ago. Import duties and tariffs were what made the US a force to be reckoned with. Amazon and Walmart leading the import charge are what has weakened the country. The problems can be dealt with but not until the voters support at least a third party. Nowhere are there tablets on a mountain that states “Thou shalt not have more than two political parties.”.
We never did ask the obvious question.
Why did our own business leaders, financiers and investors prefer China to the West?
Maximising profit is all about reducing costs.
China had coal fired power stations to provide cheap energy.
China had lax regulations reducing environmental and health and safety costs.
China had low taxes and a minimal welfare state.
China had a low cost of living so employers could pay low wages.
China had all the advantages in an open globalised world.
Western companies couldn’t wait to off-shore to low cost China, where they could make higher profits.
Western businesses tried cutting costs here, but could never get down to Chinese levels and they needed to off-shore to maximise profit.
They gave away decades of Western design and development knowledge in technology transfer agreements.
China was a new, fast growing economy compared to the mature, slow growing economies of the West.
Investors would be able to achieve better returns in the new, fast growing Chinese economy and this is where the money headed.
US investors love China and know it’s the best place to make real money.
https://www.youtube.com/watch?v=CaELQS5kTso&t=727s
George Soros, Bill Gates, Warren Buffett, Elon Musk, Jeff Bezos …..
The cards were stacked in China’s favour.
Eventually the Americans realised China would soon overtake the US.
PANIC.