The U.S. Manufacturing Conundrum: Will America Resume Manufacturing Anytime Soon?
It appears that the United States has nearly ceased manufacturing, largely due to the NAFTA treaty, which wiped out the manufacturing sector overnight. Once a hub for manufacturing and technology companies, many US cities, including Colorado Springs, have become primarily affiliated with cashiers and fast-food workers, as seen in the aftermath of NAFTA's implementation.
Why the Disappearance of US Manufacturing?
NAFTA's impact on the U.S. manufacturing industry cannot be overstated. Within six months of the treaty's inception, companies like Digital, Western Symbios, logic, Hewlett Packard, and Atmel (to name a few) had vanished, leaving behind only empty buildings that were repurposed for other uses. The decision to manufacture overseas and import products was often cheaper for these companies.
Economic Factors of Overseas Manufacturing
The primary reason for outsourcing manufacturing to other countries is the cost competitiveness of production. While there are additional costs associated with transporting goods over long distances due to size and weight compared to the value of the goods, this is not always a decisive factor. For instance, basic building materials such as lumber, plywood, and sheetrock are not cost-competitive to transport from overseas due to their sheer size and cost of transportation.
On the other hand, smaller items with high value, such as screws and plumbing fixtures, can often be cheaper to produce overseas and are economically viable when it comes to transportation. This is especially true for materials and goods that can be transported via waterways, like some items made in Canada due to their abundant wood supply and efficient rail transportation.
Frailty and Fragility
Another factor influencing where products are manufactured is the frailty of the goods. Some products are susceptible to damage during long-distance shipping, and it is often impractical to transport them from overseas. For example, new kitchen appliances that I purchased this year were all made in the U.S. despite not being chosen specifically for that reason.
Government-Sponsored Manufacturing
A significant portion of the U.S. government's budget is allocated to the military, and a substantial part of that budget goes towards the production of various items, from socks to missiles. These essential items must be produced domestically, and the process is heavily regulated to ensure compliance. This requirement often extends down to state and local governments, who also have similar policies for critical components and products.
Importing Components for Domestic Assembly
While many products are now made overseas, there are instances where importing components and assembling them in the U.S. can be more cost-effective. My experience in electronics distribution has revealed that while some components are sourced from the U.S., others, like the wiring harnesses for John-Deere products, are made in Mexico. Similarly, an airline seating/entertainment system company in Vietnam supplies components for my Toyota vehicle, even though the car was assembled in the U.S.
The Profitability of Manufacturing in the USA
The profitability of manufacturing in the U.S. depends on the specific nature of the product. Electronics, while small and easily transported by air, often have a high profit margin that can support the cost of transportation. Hence, products like cell phones are produced in the U.S., while sand, due to its low value and perishability, is not.
In conclusion, while the U.S. manufacturing sector has faced significant challenges, particularly with the implementation of NAFTA, the decision to resume manufacturing is not as simple as it seems. The complex interplay of economic factors, government regulations, and the nature of the product being manufactured determines whether it is more profitable to produce in the U.S. or to import goods and components from overseas.