Intel recently announced at a White House event that it will build a $20 billion fab, or semiconductor factory, near Columbus, Ohio. The fab is expected to create 3,000 permanent jobs.
This is a prominent example of “reshoring” — where advanced manufacturing work is returned to, or created in, the United States. This after decades of offshoring, especially to China and elsewhere in east Asia.
Chips are in especially short supply, with less than five days of some conductors on hand. These shortages are a big driver of inflation because they increase prices for short-handed sellers such as auto dealers.
Intel has seemed to be on the cusp of reshoring before. In 2017, the company announced a $7 billion plan to complete a mothballed fab 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.
Reshoring hasn’t been a critical need for Washington state. Especially thanks to Boeing and its constellation of aerospace manufacturers, we’ve had it pretty good. Another benefit: the remarkably diversified economy of the Seattle area and its consistent ability to attract world talent.
An Amazon warehouse is (no kidding) a big economic win for most states and localities. Here we have Amazon’s headquarters with more than 50,000 top jobs in Seattle and another 25,000 planned for Bellevue.
Washington was among the least-hurt states by the “China shock” at the start of the century, when Chinese entry to the World Trade Organization cost almost 6 million U.S. factory jobs.
But Washington’s situation could change. That makes it important to watch reshoring efforts closely.
The reshaping of industry during recent decades, resulting in the 10,000-mile supply chain, appeared to create more winners than losers — and not only in China but in America, where consumers eagerly bought cheap imports. The lost wages and good jobs were diffuse. The benefits of low prices were immediate gratification for all.
But Trump hit a nerve by promising to “get tough on China,” even though his tariffs were essentially taxes on American buyers. It took COVID-19 to get our attention as to how dependent we’ve become on “Chimerica.”
A 2020 report by the Brookings Institution pointed to the lack of personal protective equipment during the pandemic as a reason to bring industries and supply chains back home. Most of the equipment is made in China.
It laid out several policy recommendations to remedy the problem, which could be applied to other advanced manufacturing sectors beyond medical supplies. For example, guaranteed contracts for domestic producers from the federal government, use of Opportunity Zones (tax breaks for distressed areas) to lower costs, federal grants to attract tech investments, and a dedicated fund “to support the upfront costs of reshoring, administered by states to boost revenues and supplement more immediate federal aid.”
According to the advocacy group Reshoring Initiative, more than 1,800 companies were set to bring back more than 138,000 jobs in 2021. The biggest sectors are transportation equipment, chemicals, computers and electronic products, and medical equipment and supplies.
Even so, this is a fraction of the jobs lost to offshoring in the China Shock.
Intel, meanwhile, is an unreliable measure of reshoring. The Silicon Valley-based company operates four fabs in the United States, including Hillsboro, Oregon, not counting the new Ohio site, along with another four offshore, including one in Dalian, China. Intel also operates six test and assembly locations overseas, including two in China. So it spreads its bets widely.
One of the biggest questions for reshoring is whether American consumers will pay extra for American wages at reshored factories.
To be sure, China is more vulnerable to reshoring than a decade ago.
It faces demographic challenges with an aging population, a real-estate crisis, the pandemic, rising manufacturing costs, and Xi Jinping’s crackdown on the economy (such as sidelining business magnate Jack Ma), potentially hurting its economic dynamism.
Noah Smith, an assistant professor of finance at the Stony Brook University, New York, wrote in his substack column: “So the question is: Can the U.S. use China’s moment of weakness to turn this situation around, and put itself back at the center of manufacturing production networks? The answer is: Maybe, but it’s not as easy as just clawing back business from China.”
Smith’s assessment of reshoring looks different from the Chimerica of its advocates. Rather, it would be “near-shoring” with allies (moving manufacturing from Asia to Mexico) and heavily dependent on robots.
He writes, “In the long run, rich countries produce some of everything, but they aren’t heavily weighted toward labor-intensive industries. That’s just the nature of the beast — if you want to be a rich country, it means you have to do high-value work. That means doing the design, marketing, and high-end component manufacturing….”
Reshoring and near-shoring might become important to Washington because of Boeing’s troubles, most of them self-inflicted. For example, the lethal 737 MAX catastrophe and moving 787 production to South Carolina to bust the union here — and receiving inferior work on the Dreamliner.
Partly because of a prolonged halt to 787 deliveries (with costs soaring to $5.5 billion), the company reported a net loss in 2021.
Because of its importance as an exporter and defense contractor, it’s tempting to say Boeing is too big to fail. But as General Electric — where many recent Boeing CEOs cut their teeth — showed, giant companies can be broken up.
A Boeing breakup would mean a profitable defense contractor separated from a struggling airline manufacturer. The latter is the manufacturing underpinning of the Puget Sound region. Boeing already depends on a worldwide supply chain for airplanes assembled here. Meanwhile, Boeing’s most important export customer, China, is hurrying its own domestically produced airliner.
It’s not impossible to imagine a struggle to retain the scores of major Boeing partners here and market Washington as an attractive place to reshore aerospace work.
The worst might not come to pass. But we should be prepared.