It sounded like a great idea at the time, “Just in time supply-chain inventories.” Let countries with cheaper labor build the parts that you need and arrange for them to be delivered “just in time” to meet manufacturing needs.
Then came the COVID-19 pandemic, the war in Ukraine, increased tensions between China and Taiwan, tariffs on Chinese goods, droughts and other weather events across the globe, and the magic of “just-in-time supply chains” dissolved, becoming unreliable and stunting the supply of finished manufactured products. Ask Ford Motors, which has thousands of F150s sitting in yards waiting for semiconductor chips and their blue oval brand labels, about it.
So, what’s happening to mitigate these issues and what do these happenings mean for the U.S.? What’s happening is what’s known as reshoring. Best estimates are that over the next year, U.S. companies will be repatriating between 350,000 and 400,000 jobs to the United States. These include not only U.S. companies like Walmart, Micron, GE-Appliance, Intel and Caterpillar but U.S.-based foreign companies like Honda and LG. States are in full-blown competition to be landing zones for these companies returning production to the United States.
The Reshoring Institute has proclaimed that the “US is open for business,” and it keeps a record of what each state is offering in the way of tax incentives (reshoringinstitute.org}. Ohio had a major windfall when Intel announced its $20 billion manufacturing plant in New Albany with a potential to grow to $100 billion. The Italian company Sofidel is adding 700 workers to a paper plant in Circleville. And Festo, a German company is adding 350 tech jobs in Maineville. Now Intel is planning to do the same as they did in New Albany in Upstate New York. Chips are the fuel that drive high-tech economies. The competition is keen, and the Reshoring Institute’s website shows what each state is offering as incentives but also grants.
Micron, Qualcomm and GlobalFoundries have also committed multibillion dollar investments in chip manufacturing in the U.S., significantly reducing America’s reliance on other countries for these semiconductors so vital to the world’s high-tech future.
The bipartisan Chips and Science Act could be a game changer for the U.S. It provides $52.7 billion to boost semiconductor and battery research and production which will enhance the U.S.’s stake in the necessary supply and production of electric vehicles, solar panels and other high-tech products requiring semiconductors like artificial intelligence projects and robotics, all of which should bring back jobs and strengthen America’s supply chain and manufacturing both for domestic and international production.
But the corporate world has become more complicated in today’s interconnected world and that means buying American gets more complicated.
What gets mistaken by many Americans is the fact that many “American companies” aren’t really American anymore. General Motors? It’s actually a joint venture between Shanghai Automotive Industry Corporation (SAIC) and GM. Burger King, Ben and Jerry’s, Trader Joe’s, 7-Eleven, Forbes Magazine, General Electric, Holiday Inn, Purina, Firestone Tires, Gerber, Hoover, Electrolux, Waldorf-Astoria, Motorola, Frigidaire, Spotify, Sotheby’s, Hilton Hotels and Dairy Farmers of America are either wholly owned or significantly owned by foreign companies and this trend continues.
Another trend? Immigration. It’s a hot political issue because it’s been benchmarked to partisan ideologies. Yet the reality is that immigration is down to the detriment of the economy.
Annual net immigration peaked in 2016 at over 1 million, but dropped to 247,000 in 2021. According to CBS reporting, “U.S. employers say it’s a hard time to find and keep talent. Workers are decamping at near-record rates, while millions of open jobs go unfilled. One reason for this labor crunch is that immigration to the U.S. is plummeting with potentially enormous long-term implications for the job market. Not only do immigrants tend to be younger than the U.S. population overall, they are more likely to work and three times as likely to start businesses.” So where’s the immigration problem?
According to Bloomberg, “More than a million immigrants are waiting for U.S. work permits, cutting many of them out of the job market when labor is in short supply. Processing times for visas and work permits soared after embassies and immigration offices closed for months due to the pandemic, creating a backlog of cases that the immigration agency is still struggling to work through and highlighting what critics say is the cumulative effect of years of dysfunction.
And then there’s inflation, trending up, plateauing or starting to trend down? The causes are crystalizing. COVID-19 caused supply-chain shortages causing prices to go up. Some blame corporate greed in keeping prices unnaturally high. Labor shortages (the unemployment rate is incredibly low at 3.6%) causing wages to increase to meet labor demands. The war in Ukraine and energy disruptions have caused fuel process to go up. Refinery problems in California, Washington state and Toledo have pinched supplies of gas, while OPEC is reducing supplies by millions of barrels a day to keep prices high. And in my view, the Federal Reserve kept interest rates too low for too long.
According to Forbes Magazine, “Another common answer is that unprecedented levels of government spending had a hand to play. But historically, economists have largely agreed that the link between government spending and inflation remains weak.”
Finally, two more trends. There’s the trending strong dollar. A strong dollar makes U.S. products more expensive vis-à-vis foreign made products and services. Also, there’s the Federal Reserve’s monetary policies which are trending with blunt force increases recently with funds rates going from 3.05% to 6.05%.
What do these economic trends mean? Well, our inflation isn’t as bad as Europe’s (10%) or Turkey’s (79%), but we also haven’t escaped the possibilities of a recession yet either. Ask 10 economists and you’ll get 10 different opinions, but my guess, for what it’s worth, is that things will slow down in the coming year and that should be good for America.
Bill Sims is a Hillsboro resident, retired president of the Denver Council on Foreign Relations, an author and runs a small farm in Berrysville with his wife. He is a former educator, executive and foundation president.