Wall Street Journal: "U.S. Manufacturing Rebound Lags Behind Work Sent Abroad"

December 22, 2014


Stanley Black & Decker opened a plant in Charlotte, N.C., a year ago to assemble some power drills and other tools previously made only overseas. But that factory relies on parts and materials bought outside the U.S. 

The U.S. has continued to grow more reliant on imports from China and other Asian countries despite a much-discussed trend toward “reshoring” of manufacturing, a study by the management consulting firm A.T. Kearney Inc. shows.

[by James Hagerty | December 14, 2014 | WSJ]

Some pundits and consultants in recent years have heralded the potential for the U.S. to regain many of the manufacturing operations sent overseas in the past two decades in search of lower costs. A variety of companies, including Whirlpool Corp. and General Electric Co. , have moved production of some items back to the U.S.

The A.T. Kearney study, to be released Monday, illustrates the gap between hopes raised by these scattered developments and the reality of a deteriorating U.S. trade performance.

Reshoring “is not what it’s cracked up to be,” the report says.

“There’s basically still more stuff being pushed out [of the U.S. to lower-cost countries] than is brought back,” said Patrick Van den Bossche, a Washington-based partner of A.T. Kearney.

Even so, he said the U.S. is gradually becoming more competitive in manufacturing, partly because energy costs are lower than in most other countries and the gap between U.S. and Asian wages is narrowing. Companies also can reduce shipping costs and respond faster to shifts in demand if they produce closer to their customers.

“I think we’re definitely on an upward trend in terms of U.S. competitiveness,” he said in an interview.

That trend doesn’t yet show up in the data, however. In 2009 through 2013, U.S. manufacturing output grew by an average rate of nearly 6% a year as the nation recovered from a steep recession, the study found. But U.S. imports of manufactured goods from China and other low-cost Asian countries grew even faster, at an average rate of 8%.

The study tallied imports from China and 13 other Asian countries, including India, Vietnam and Thailand. It excluded Japan and other higher-cost countries.

One big hurdle for efforts to move production from Asia to the U.S. is that American manufacturing expertise and supplier networks have withered. Stanley Black & Decker Inc. opened a plant in Charlotte, N.C., a year ago to assemble some power drills and other tools previously made only overseas. But that factory relies on parts and materials bought outside the U.S.

When ForeFront Product Design LLC of Pittsburgh introduced its Green Gorilla battery-powered spray pump for pesticides and other liquids, the company initially used brokers to arrange for the product to be made in China. Later, the founders grew nervous about relying on faraway suppliers. So they brought production to the Pittsburgh area in 2013. Still, several of the most critical parts—including pumps and lithium-ion batteries—still are made in China, where they are cheaper.

Mr. Van den Bossche of A.T. Kearney said companies considering moving production to the U.S. often worry about finding enough suppliers and skilled workers. “They’re looking for an ecosystem to plug into,” he said.

The U.S. dollar’s recent strength is another hurdle. The dollar was generally on a declining trend from early 2002 through 2013, losing about a third of its value, as measured by the Federal Reserve’s major currencies index. That made U.S. products more competitive abroad. Since mid-2014, though, the dollar is up about 10%, making U.S. goods more expensive overseas and imports cheaper.

U.S. exports of manufactured goods in this year’s first 10 months edged up 1.1% to $998.38 billion, while imports climbed 5% to $1.604 trillion.

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