BROWNSVILLE, RGV – It is good to bring manufacturing jobs from China to Mexico but long-term the assembly plants need to return to the United States, says Reshoring expert Rosemary Coates.
Coates, executive director of the non-profit Reshoring Institute, gave a presentation titled “The Urgent Need to Reshore – Why America Must Rebuild Manufacturing Now” at Texas Southmost College’s International Technology, Education and Commerce Center last Thursday.
“Nearshoring is definitely a good interim step,” Coates told the Rio Grande Guardian, at the end of her presentation. “Labor rates in Mexico are competitive with China. So, if you are looking at a production line that needs a lot of labor, then it makes sense to do that. But, longer term, when you look at the broader environment and what may happen with NAFTA, if you really are wanting to rebuild the middle class in America, you have to move production north.”
However, Coates said it does not make sense to bring every job back. She said the U.S. should focus on highly technical manufacturing jobs.
“We need to build skills and automate manufacturing so we extract that labor and then automate it. So, what comes back is not 100 percent of the jobs, but higher skilled jobs that pay better, that will help rebuild the middle class and the manufacturing economy in America. Near-shoring is an interim step to do that,” Coates said.
In a Q&A session with members of the audience, Coates said she has clients in China that are looking to relocate their businesses to Mexico. She pointed out that a Chinese or Mexican manufacturing worker earns about 15 percent of their equivalent in the U.S.
“Probably, my clients are looking at maybe ten years to manufacture in Mexico before they come back to the U.S. They want to make that interim step and to create that environment where they can manufacture in the U.S. It is definitely under discussion and it is a long-range plan and strategy,” Coates told the Rio Grande Guardian.
“I think, ultimately, the world is going to end up producing local for local. So, there will be manufacturing plants and sites in every country in the world where they are manufacturing products that will then be sold in that country. So, local for local is the long-term strategy for most manufacturing companies.”
Asked if she would agree with the Mexico Institute’s approach, that bringing manufacturing jobs to North America as a whole is a good strategy, Coates said: “I would agree with that. I am certainly in favor of free trade in general. NAFTA has a lot of warts and a lot of problems, but essentially it is the right thing to do to create a trading bloc. The downside is that it does not help American manufacturing. The problem with Mexico is, it is not America. So, while I feel we should trade freely, we also need to have another eye on how we develop the economy in America, and American manufacturing.”
The Reshoring forum was hosted by Brownsville Economic Development Council. It was highly topical given that the loss of U.S. manufacturing jobs was discussed in depth during the recent presidential campaign. In fact, the day before Coates gave her presentation President-elect Donald Trump announced that 1,100 manufacturing jobs at Carrier Corporation’s air conditioning and heating plant in Indianapolis would remain in the U.S. and not go, as planned, to Monterrey, Mexico. In return for keeping the plant in the U.S., United Technologies, parent company of Carrier, will receive $7 million in state tax incentives.
Coates is also president of Blue Silk Consulting. She has nearly 25 years of experience in global supply chain consulting and has over 80 supply chain clients worldwide. The Reshoring Institute is housed at the University of San Diego, which is where Coates got her MBA.
Coates revealed that she had not always been involved in helping supply chain companies relocate to the United States. In fact, she said, for many years she helped U.S. manufacturing companies set up operations in China. She presented a slide from inside a Chinese manufacturing plant that showed Chinese workers had no protective clothing, gloves or goggles while working on a heavy industry assembly line.
Coates said she had an “epiphany” during a family gathering one Christmas when she started to think what jobs would be available in the U.S. for her grandchildren. She showed a picture of herself with her five grandchildren. “That’s the real reason to Reshore,” Coates said, pointing at the image. Soon after that Christmas gathering she helped set up the Reshoring Institute.
In her presentation, Coates pointed out that it was the economic strategy of many U.S. firms to offshore their work to China in the 1900s and 2000s. Between 2001 and 2011, the U.S. lost 2.7 million jobs to offshoring, she said. “Companies and towns across America were shuttered.”
Coates said the presidential election of 2012, between Barack Obama and Mitt Romney, was the catalyst for the Reshoring movement in the United States. “The mood of America has shifted from a desire to buy the least expensive goods to goods ‘Made in America’,” Coates said. A factor for U.S. manufacturers to consider, Coates said, is that there has been a rise in Chinese wages of about 15 to 18 percent per year for the last 14 years.
Coates gave a shout out to Walmart for its Reshoring efforts. The retail giant is planning to make a $250 billion investment in U.S.-made goods. A decade or so ago, 84 percent of goods sold in Walmart came from abroad. By focusing on price, Walmart had inadvertently shuttered supply chain operations in the U.S. and so its consumers could not buy its products. Walmart had to close many of its stores, Coates said. Now, Walmart gives preference to U.S.-made goods, she said.
Another boost to Reshoring has been the Revitalize American Manufacturing Act of 2014, Coates said. The legislation aims to create a network for manufacturing innovation and an expansion of advanced manufacturing jobs through investment in technology.
Coates cited a survey of manufacturers by Boston Consulting. Fifty-four percent of U.S. manufacturers with annual sales greater than $1 billion say they are considering Reshoring. She also cited the Bureau of Labor Statistics. Since 2003, new offshoring is down by 70 to 80 percent and new Reshoring is up by 1,500 percent. The bureau also states that as of 2015, offshoring of manufacturing jobs is roughly equivalent to the new manufacturing jobs being created in the United States, or 66,000 per year.
“Manufacturing is key to middle class growth,” Coates said. “Factory jobs are essential to economic health in communities across America. And, every new manufacturing job has a magnifier effect of about 1.4 times.”
Coates said that in order to be cost effective, Reshoring must include a heavy investment in automation. She said robots cost less to operate than humans and are getting cheaper and better. In fact, Coates said, Boston Consulting predicts that by 2025, the operating cost of a welding robot will be less than $2 per hour.
In her presentation and in her interview with the Rio Grande Guardian, Coates said community colleges will play an increasingly important role in providing workers with the skills for the technical jobs of tomorrow.
“I think community colleges are essential and that is because most of the manufacturing skills today require not only basic manufacturing skills but also some technology. In other words, how to control the robot on the manufacturing floor, how to operate the computer so you are operating quality checks along the line. How not just to be the welder but how to control a welding robot. The skills have become hybrid and community colleges are just perfect for building those kinds of skills. They can do the trades as well as the technical part,” Coates told the Rio Grande Guardian.
Coates’ final slide in her presentation posed the question, what can the general public do to support Reshoring. She said the answer was to buy “Made in the USA” products, even if they are more expensive. “It will help in the long run,” she said. Also, the public should support STEM skills and programs in elementary schools, colleges and universities.
“Change the way you talk about manufacturing. Today it is a well-paid profession, often in a clean, high-tech environment,” Coates added.