America's Extraordinary Reindustrialization Opportunity

America's Extraordinary Reindustrialization Opportunity
As hyper-globalization recedes, production systems must be restructured to address this. North American is positioned to benefit from this new era.
Technology Briefing


As part of an accelerating deglobalization trend, reshoring and near-shoring of manufacturing-related activities is becoming a top priority for executives and policymakers in advanced economies. A UBS survey of more than 1,600 senior executives found that 70% of them planned to move parts of their supply chains closer to home. That's consistent with a Bank of America analysis of S&P 500 earnings call transcripts, which found companies’ mentions of "reshoring" were up 128% in the first quarter of 2023 versus a year earlier.

For comparison, mentions of artificial intelligence, were up just 85% year-over-year. According to the results of another recent poll conducted by Forbes, Xometry and Zogby, 55% of the American CEOs surveyed have plans to reshore manufacturing operations. And of those, 95% say they'll do so in 2023. That’s an incredible commitment by CEOs to continue building American manufacturing resilience.

Even before the recent quantum surge in activity, the trend in net new American jobs created by reshoring plus foreign direct investment in manufacturing, was dramatic. When it began in 2010, the annual net total was a miniscule 5,770 net jobs. However, in 2022, 364,904 net new jobs were created. That's a 53% increase from 2021! This phenomenon has impacted every region of the country. However, the South including Texas received 54% of the roughly 1.6 million net new jobs created by reshoring and foreign direct investment from 2010 to 2022.

Much of this was influenced by favorable regulations, easy access to raw materials and a skilled labor force. This new wave of industrialization won't simply rebuild "your grandfather's manufacturing base." America’s 21st century wage rates, skill sets, and demography means that, companies can’t be competitive if they simply bring back 1980s manufacturing jobs. Consequently, this vast reindustrialization effort requires a modernization wave of the kind last seen during World War II.

As a result, CEOs are investing in robotics, automation, and digital workflow tools as they ramp up domestic production. The Forbes survey found that 72% of CEOs surveyed were investing in automation and digital workflows, 58% were investing in artificial intelligence and 47% were investing in robotics. Beyond manufacturing workers, automation companies and raw materials suppliers, the biggest winners to-date from the reshoring wave are in construction.

The amount spent on building U.S. manufacturing plants in May 2023 jumped to $15.7 billion. That was a surge of 73% from a year earlier and 147% from May 2021. Building of new computer, electronic, and electrical manufacturing plants was the primary driver behind this surge of factory construction. According to recent data from the Treasury Department, spending on construction of plants for computer, electronics, and electrical manufacturing, adjusted for inflation, has nearly quadrupled!

The boom in manufacturing construction spending started in early 2021, likely in response to the pandemic era supply-chain chaos and transportation nightmares that wreaked havoc on globalized supply strategies and led to previously unimaginable shortages. While the boom in manufacturing construction started over a year before the CHIPS Act was passed in August 2022, it appears that it has further accelerated the construction of manufacturing plants for tech products.

In its analysis, the Treasury Department said that this surge in construction of manufacturing plants appears to be a U.S. centered phenomenon; it's far less pronounced in other advanced economies. For instance: Japan has seen increases in the floor area of new manufacturing over the past year, but construction remains below pre-pandemic levels, Germany's real new construction spending on factory and workshop buildings has remained relatively stable over the past decade; While the United Kingdom and Australia saw meaningful increases in real industrial construction in 2022, rising about 40 percent from 2021 levels, those numbers recently leveled off, even as U.S. manufacturing construction nearly doubled.

This nascent investment boom in building and equipping U.S. factories has the potential to solve a set of enormous problems created by rampant offshoring and globalization of supply chains by U.S. companies. Consider just a few. First, adjusted for price increases, U.S. industrial production has been roughly flat since 2006; that means the world's largest economy became increasingly vulnerable to economic disruption from the outside.

Second, the disappearance of domestic manufacturing has meant that a whole generation of would-be industrial workers has been "under employed," so they never acquired crucial on-the-job training; this diminished opportunity has contributed to the widely documented economic and psychological problems of Millennials and Gen Z. Third, over-reliance on global supply chains is what got so many companies tangled up in chaos arising from the 2020 and 2021 "supply shocks."

Fourth, as of 2023, North America is no longer state-of-the-art when it comes to turning intellectual capital into final consumption; but, as we saw after the Great Depression, such eco-systems can be "built back better," it simply takes commitment and time. Fifth, analytic and generative artificial intelligence will unleash a quantum leap in productivity, potentially displacing many workers; manufacturing-related industries can provide new job opportunities, while generating the wealth needed to rebuild critical “social safety net” programs.

Sixth, extraordinary intellectual property belonging to American, Japanese, and Korean companies has all too often been stolen by foreign suppliers, who represent both commercial and geopolitical rivals. At this point, the opportunity is clear. America’s reindustrialization could solve these six "mega-problems" as well many smaller ones. The realities of demography, technology, and behavior are all converging to enable this rebirth. Managed correctly, reindustrialization could ensure that the 21st century becomes “the 2nd American Century.”

Realizing this will depend largely on eliminating self-imposed barriers to innovation while harnessing North America’s unique competitive advantages. Given this trend, we offer the following forecasts for your consideration. First, the reindustrialization of North America will contribute enormously to the overall vibrancy of our economy. Based on research from the National Association of Manufacturers, for every dollar spent in manufacturing, the direct and indirect impact induced across the overall U.S. economy is $2.60. That’s because manufacturing has one of the largest multiplier effects among all sectors.

More importantly, research show that for every added worker in manufacturing, 4.4 workers are added in the overall U.S. economy. Furthermore, for every $1.00 earned in direct labor income in the manufacturing sector, $3.75 in earned labor income is added to the overall U.S. economy. Not surprisingly, the restoration of a strong manufacturing foundation will form the basis for a dramatic national economic resurgence.

Second, a reindustrialized North America will be unique in being self-sufficient in almost everything needed for success in a deglobalizing world. To begin with, it has "critical mass" domestic markets in both the B-to-B and B-to-C categories. It also doesn't have to worry about ensuring access to foreign energy; unlike China, India and the EU, North America’s "energy dominance" means that it will be a net exporter of fossil fuels and Uranium. And as long as it avoids self-destructive decisions, North America will remain self-sufficient in food, fertilizer, water and most strategic minerals, as well.

Demographically, North America has the best age distribution of any advanced economy. Meanwhile, its extraordinary universities and business climate make it a magnet for talent from around the world. And these structural advantages coupled with unparalleled geographic advantages will enable it to attract and maintain the deep pool of financial and intellectual capital required for exploiting leading-edge innovation.

Third, reindustrialization will largely eliminate the adverse employment impact associated with the coming AI-based productivity revolution. Generative and analytic artificial intelligence coupled with robotics threatens to reduce the number of people needed to perform routine tasks, while amplifying the capabilities of others. That implies a great deal of displacement, which workers and policymakers find scary. But that's good, because we've already exited the 70-year era of "surplus labor" that began in the 1950s and continued until the pandemic.

Fortunately, reindustrialization will create a flood of attractive employment opportunities, especially for the people left behind during the era of hyper-globalization. In 2021, U.S. manufacturing workers on average earned 19% more than the average worker including pay and benefits. And those jobs promise to be located disproportionately in regions with lower living costs, like Texas.

Fourth, reindustrialization will contribute to inflation, but much of this will be offset by the deflationary effects of rising productivity. Reindustrialization will involve increased labor demand, especially in manufacturing, business services, and transportation. However, widespread technology-driven productivity increases will offset much of this upward price pressure.

Fifth, North America’s reindustrialization will attract foreign direct investment and mobile capital from around the world. Just as China was the place to invest in from 1990-to-2010, North America will be the primary target for global capital over the next 10-to-15 years. Safety and access to end-to-end capabilities will prove decisive. No other location has the combination of talent, intellectual capital, raw materials, logistics and access to domestic markets. However, India and Southeast Asia will see an even bigger surge in percentage terms.


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