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Guest Blog: Import Penetration Still Outweighs Reshoring Trend

BY MICHELE NASH-HOFF. In January, the U. S. Business and Industry Council released a report, "Import Penetration Rises again in 2011; Challenges Manufacturing Renaissance, Insourcing Claims," by Alan Tonelson. According to the report," the share of U.S. markets for advanced manufactured goods controlled by imports reached another all-time high in 2011... and domestic manufacturing's highest value sectors keep falling behind foreign-based rivals." 

The USBIC report shows that "imports captured 37.57 percent of the collective $2.01 trillion American market in 2011 for a group of more than 100 advanced manufactured products," up from 37.07 percent in 2010. When government data to calculate import penetration rate were first issued in 1997,"imports controlled 24.49 percent of substantially the same group of U.S. manufactured products."  
 
The report went on to state: "Fully 29 of the 106 sectors for which reliable data were available featured import penetration rates of 50 percent or more in 2011. In 2010, 31 of these industries had lost half of their home U.S. market to imports and, in 1997, only 8 of the 114 sectors initially studied were in this situation."
 
Between 1997 and 2011, 98 industries lost shares of their home market while only 8 gained shares. The industries that gained shares are: "semiconductor machinery; saw mill products; paperboard mill products; motor vehicle stamping operations; transformer, inductor, and coil manufacturing; electron tubes; computer storage devices; and heavy duty trucks and chassis."
 
The 98 industries include: "semiconductors; electro-medical apparatus; pharmaceuticals; turbines and turbine generator sets; construction equipment; farm machinery and equipment; mining machinery and equipment; several machine tool-related categories; and ball and roller bearings."
 
The report states that "from 1997-2011, output fell in 38 of the 106 total industries studied over this time span - nearly 36 percent of the total. These 'declining' industries include electricity measuring and test instruments; relays and industrial controls; motors and generators; motor vehicle engines and engine parts; several machine tool-related categories; and environmental controls." In 11 more sectors, output growth was less than 10 percent, "including semiconductors; semiconductor production equipment; motor vehicle transmission and power train equipment; miscellaneous industrial machinery; and medicinals and botanicals."
 
Mr. Tonelson writes, "High and rising import penetration rates for this many critical domestic industries over nearly a decade and a half represent powerful evidence of chronic, significant weakness in domestic manufacturing."
 
In a section titled, "The Manufacturing Renaissance that Isn't," he disputes the predictions of the Boston Consulting Group's 2011 report, "Made in America, Again: Why Manufacturing Will Return to the U.S." This report contends that American manufacturing would experience a renaissance because of rising costs in China and other parts of Asia so there would be a convergence in the total costs of manufacturing by some regions of the U.S. by 2015.
 
If U.S. manufacturers are still losing market share to foreign competitors through import penetration in their home market, this is a sign that "the United States has not even started to become increasingly attractive for the production of many goods sold to consumers in North America," as predicted by the Boston Consulting Group, much less experiencing a 'Manufacturing Renaissance.'
 
What is even more troubling to Mr. Tonelson is that the USBIC report focuses on the capital-and technology-intensive sectors that are "keys to maintaining national prosperity, technological leadership, and national security." The report shows that "dozens of America's most advanced manufacturing industries are becoming just as vulnerable to import competition --and in some cases to import domination -- as labor-intensive industries like clothing and toys."
 
Tonelson concludes that the conventional stimulus strategies have had the disappointing results of "less growth and employment bang per investment-target stimulus buck with each passing year" because "U.S. imports of capital goods as such generates much less American output supported by much less American employment than purchases of domestically produced capital goods."
 
In his opinion, President's Obama's goal of doubling exports during the 2009-2014 period isn't going to improve the situation, either--not when imports keep rising faster than exports. While there was a 15.45 percent improvement from 2010 to 2011, the January-October 2012 period only showed a 4.56 percent improvement.
 
Tonelson concludes that the continued rise of import penetration in the U.S. indicates that American industry is losing ground relative to foreign-based competitors and "the nation is not making enough of the structural changes needed to create healthy growth and avoid reflating the last decade's credit bubble."
 
In an interview by Richard McCormack in the January 15, 2013 issue of Manufacturing & Technology News, Mr. Tonelson, stated, "I think the only way that these trends reverse meaningfully is if American trade policy changes. Unless we reduce the incentives of U.S. companies and companies all over the world to supply the U.S. market from overseas, this tide will not turn."
 
While reducing the incentives of U. S. companies and foreign companies to supply the U.S. market from overseas is an important step in turning the tide, it would be the first of many steps we need to take. As I have written previously, we need to change our trade, tax, and regulations policies to help U. S. manufacturers be more competitive in both their home market and the global marketplace. We need to develop a national manufacturing strategy that would address all of the various factors that are resulting in the decline in the decline in the United States' share of the global manufacturing output.
 
**I did take exception to Mr. Tonelson's dispute of the predictions of the Boston Consulting Group's report and told him that the data is lagging reality - "reshoring" is happening. As a manufacturers' sales rep for American companies that perform fabrication services, I am in the "trenches" competing with offshore companies. Nearly every manufacturer I represent has experienced gaining new customers that are "reshoring" manufacturing from China. I have interviewed dozens of companies at trade shows over the past year and a half, and every company I interviewed had experienced "reshoring." Nearly all of the San Diego region's contract manufacturers of electronic manufacturing services have benefitted from "reshoring" in the past year.
 
The Reshoring Initiative, founded by Harry Moser in 2010, has documented case studies of companies reshoring. In the article, "Pumping Muscle into U.S. Manufacturing," by Craig Barner in the March 6, 2013 issue of Forbes magazine, Mr. Moser said, "For example, about 220 to 250 organizations have brought manufacturing back to the U.S....with the heaviest migration from China. This represents about 50,000 jobs, which is 10% of job growth in manufacturing since January 2010."
 
ABOUT THE AUTHOR
Michele Nash-Hoff has been in and out of San Diego’s high-tech manufacturing industry since starting as an engineering secretary at age 18. She has served as president of the San Diego Electronics Network, the San Diego Chapter of the Electronics Representatives Association, and The High Technology Foundation, as well as several other professional and non-profit organizations. She is an active member of the Soroptimist International of San Diego club. She has a certificate in Total Quality Management and is a 1994 graduate of San Diego’s leadership program (LEAD San Diego.) She has also taken classes in lean manufacturing and Six Sigma. 
Nash-Hoff is also an author of books on U.S. and global manufacturing. Her most recent work, “Can U.S. Manufacturing Be Saved?” is available online at www.savingusmanufacturing.com/index.php or via amazon.com.

Nash-Hoff may be reached via e-mail at michele@SavingUSManufacturing.com

Posted 02/04/2013 by Reg Tucker

Tagged under: U.S. manufacturing , imports , reshoring

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