The US federal government has now invested billions in bringing manufacturing back home. In response, manufacturing titans, including Intel, Samsung, and TSMC, currently have new US fabrications under construction. The Biden Administration’s 2021’s report, Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth, arose in response to escalating supply chain disruption and semi-conductor shortages. Many would say it reads like a virtual manifesto for US manufacturing self-sufficiency.
At Pivot International, we are a US-based one-source product development firm with advanced DFM expertise and 320,000 square feet of global EMS capability, including options in the Philippines and the American Midwest. We are proud to carry on the Made In the USA tradition while providing clients with globally diversified sourcing solutions. As we continue contributing to the industry conversation on the future of American manufacturing, we hold the position that US interests are best served with a balanced perspective on the benefits vs. risks of reshoring.
The Question of Self-Sufficiency in US Manufacturing
Reshoring chip production from Taiwan and electronics manufacturing from China to the US and its allies holds industry-changing impacts, geopolitical risks, and economic uncertainties. The question remains whether US manufacturing self-sufficiency is desirable, much less achievable. Arguments in favor of a more balanced (and therefore sustainable) approach to supply chain resilience include the following objections:
- With demand increasing across multiple economic sectors, it seems dubious that a singular focus on increasing domestic supply capacity can result in long-term resilience.
- Global value chains appear too intertwined to be meaningfully decoupled without incurring second-order consequences.
- An excessive emphasis on reshoring runs the risk of further politicizing global supply chains and is a recipe for a second cold war.
- There are potentially irresolvable tensions between reshoring and environmental sustainability.
These objections reveal that while increasing US manufacturing capability across all sectors is critical, it’s only half the story. To foster more resilient supply chains, drive economic growth, establish greater national and geopolitical security, and reach sustainability goals, the terms of globalization must not be abolished but instead rewritten. This means preserving the benefits of an interconnected world and global economy while taking strategic steps to better mitigate risk.
Advantages of Domestic Manufacturing
The superiority of offshoring is often tacitly assumed. But in select cases, domestic manufacturing can be an even more cost-effective solution. Advantages include:
Eliminating Ocean Shipping Costs
Ocean shipping costs broke the sound barrier in 2021 when carriers made $190 billion profit — seven times more than the year before. And in the wake of the “Containergeddon” scenarios that plagued supply chain in the spring of 2022, domestic manufacturing is becoming an increasingly sought-after option for cutting soaring shipping costs.
Avoiding VAT (Value Added Tax) and Reducing Tariffs
Almost all countries levy VAT. Because VAT is levied on nearly every link of the supply chain, companies often fail to factor how deeply it can impact their margins. Fortunately, the US is one of the few countries that does not levy VAT, enabling companies who opt for domestic manufacturing to avoid these dings to their investment. Working with a domestic supplier also allows companies to avoid tariffs.
Why MidWest Manufacturing is the Most Competitive Domestic Option
Midwest manufacturing is almost always a superior choice to coastal manufacturing for three reasons. First, because the Midwest functions as the country’s logistics and e-commerce hub, it outperforms the “In” and “Out” costs of almost everywhere else in the country.
Second, coastal cities are extremely expensive, driving up operational costs for coastal manufacturing facilities that are passed along to the customer. When companies consult with Pivot to determine what combination of domestic and offshore manufacturing options will best fit their needs, they are often pleasantly surprised to find we can beat the price of coastal quotes significantly.
Last, working with a Midwest partner affords the benefit of making it easy for our clients to visit us onsite since we’re never more than a three-hour flight from anywhere in the continental US.
Looking for a Proven US-based Manufacturing Partner?
At Pivot, we provide our clients with multiple solutions to complex NPD and supply chain challenges. With nearly fifty years of experience and an internationally award-winning portfolio of successful products that span fourteen industries and six markets, we are the US-based global partner for all your product development and distribution needs.
If you’d like to learn more about how we can help you get the best of both worlds through a balance of domestic and global sourcing solutions, contact us today for a free consultation!