Relocating manufacturing could be Washington’s future

Intel recently announced at a White House event that it would build a $20 billion semiconductor manufacturing plant near Columbus, Ohio. The fab should create 3,000 permanent jobs.

This is a stark example of “reshoring” – where advanced manufacturing work is sent back or created in the United States. This after decades of outsourcing, particularly to China and elsewhere in East Asia.

Chips are especially rare, with some drivers less than five days on hand. These shortages are a major driver of inflation because they raise prices for short-term sellers such as car dealerships.

Intel seemed to be on the verge of relocating before. In 2017, the company announced a $7 billion plan to complete a mothballed manufacturing plant in suburban Phoenix during President Donald Trump’s trade war with China. Whether the Ohio move is the start of something more substantial is being watched closely by economic development officials.

Relocation has not been a critical need for Washington State. Mainly thanks to Boeing and its constellation of aerospace manufacturers, we did quite well. Another plus is the Seattle area’s remarkably diverse economy and continued ability to attract global talent.

An Amazon warehouse is (no kidding) a big economic win for most states and localities. Here we have Amazon headquarters with over 50,000 top jobs in Seattle and another 25,000 planned for Bellevue.

Washington was among the states least affected by the “Chinese shock” at the turn of the century, when China’s entry into the World Trade Organization cost nearly 6 million American factory jobs.

But Washington’s situation could change. It is therefore important to closely monitor relocation efforts.

The industry overhaul over the past few decades that culminated in the 10,000 mile supply chain seemed to create more winners than losers – and not just in China but also in America, where consumers have eagerly purchased cheap imports. Lost wages and good jobs were diffuse. The advantages of low prices were immediate gratification for all.

But Trump struck a chord by promising to “crack down on China,” even though his tariffs were essentially taxes on American buyers. It took COVID-19 to bring our dependence on “Chimerica” ​​to our attention.

A 2020 Brookings Institution report pointed to the lack of personal protective equipment during the pandemic as a reason to bring industries and supply chains home. Most equipment is made in China.

He made several policy recommendations to address the problem, which could be applied to other advanced manufacturing sectors beyond medical supplies. For example, guaranteed contracts for domestic producers by the federal government, the use of opportunity zones (tax breaks for troubled areas) to reduce costs, federal grants to attract technology investment, and a dedicated fund “ to support the initial costs of relocation, administered by states to increase revenue and supplement more immediate federal assistance.

According to advocacy group Reshoring Initiativemore than 1,800 companies were expected to bring back more than 138,000 jobs in 2021. The largest sectors are transportation equipment, chemicals, computers and electronics, and medical equipment and supplies.

Even so, this is only a fraction of the jobs lost to offshoring during the Chinese shock.

Intel, meanwhile, is an unreliable measure of relocation. The Silicon Valley-based company operates four fabs in the United States, including Hillsboro, Oregon, not including the new location in Ohio, as well as four more overseas, including one in Dalian, China. Intel also operates six test and assembly sites overseas, including two in China. He therefore spreads his bets widely.

One of the biggest questions about relocation is whether US consumers will pay extra for US wages at relocated factories.

Certainly, China is more vulnerable to relocation than ten years ago.

It faces demographic challenges with an aging population, a real estate crisisthe pandemic, rising manufacturing costs and Xi Jinping’s crackdown on the economy (such as sidelining business tycoon Jack Ma), which could hurt its economic momentum.

Noah Smith, assistant professor of finance at Stony Brook University, New York, wrote in its sub-stack column“So the question is, can the U.S. take advantage of China’s moment of weakness to turn the tide and get back at the center of manufacturing production networks? The answer is: maybe, but it’s not as simple as picking up business in China.

Smith’s assessment of relocation seems different from the Chimerica of his supporters. Rather, it would be “near-shoring” with allies (moving manufacturing from Asia to Mexico) and highly dependent on robots.

He writes: “In the long run, rich countries produce a bit of everything, but they are not strongly oriented towards labor-intensive industries. It’s just the nature of the beast – if you want to be a rich country, that means you have to do high-value work. This means designing, marketing and manufacturing high-end components…. »

Relocation and near-shoring could become important for Washington due to Boeing’s problems, most of which are self-inflicted. For example, the deadly 737 MAX disaster and the move of 787 production to South Carolina to break the union here – and receive substandard work on the Dreamliner.

Partly due to an extended shutdown of 787 deliveries (with costs reaching $5.5 billion), the company posted a net loss in 2021.

Because of its importance as an exporter and defense contractor, it’s tempting to say that Boeing is too big to fail. But as General Electric – where many recent Boeing CEOs have cut their teeth – has shown, giant corporations can be broken up.

A break from Boeing would mean a profitable defense contractor separated from a struggling airline manufacturer. The latter is the manufacturing foundation of the Puget Sound region. Boeing already depends on a global supply chain for planes assembled here. Meanwhile, Boeing’s biggest export customer, China, is scrambling for its own locally produced jetliner.

It’s not impossible to imagine a struggle to keep Boeing’s major partner scores here and market Washington as an attractive place to relocate aerospace work.

The worst might not happen. But we have to be prepared.

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