Supply chain disruptions during COVID-19 show how dependent countries are on manufacturing. The inability of the US to produce much-needed items like testing kits and personal protective equipment during the pandemic shows our vulnerability as a nation. The rise of China as a global manufacturing superpower further underscores the weakness of American manufacturing.
In addition to fixing supply chain disruptions, bringing manufacturing back to the U.S. will benefit national security. Advanced computer chips, for example, are disproportionately made by a single company, Taiwan Semiconductor Manufacturing Co. These microchips are critical for smartphones, medical devices and self-driving cars, as well as military technology. TSMC, from a US national security perspective, is very close to China. Taiwan’s proximity to China makes it vulnerable as the Chinese government threatens to use force to unify Taiwan with the mainland.
My research and others examine how the lack of manufacturing competitiveness in the US leaves the US vulnerable to shortages of critical goods during geopolitical disruptions and global competition. The strategy that the US uses to generate manufacturing, along with innovative practices, will be key to ensuring national security.
Strengthen national security
President Joe Biden has signed two bills that propose rebuilding American manufacturing. The CHIPS and Science Act of 2022 will provide US$52.7 billion for American semiconductor research, development, manufacturing and workforce development.
The Inflation Reduction Act of 2022 would invest $369 billion in promoting a clean energy economy, in part by offering low incentives for U.S.-made electric cars.
Training workers for new advanced manufacturing is another key factor in strengthening the increasingly technology-dependent sector. In fact, while the number of jobs in American manufacturing fell by 25% after 2000, manufacturing output did not fall. However, American manufacturers face labor shortages, especially among workers with the skills needed to create a new generation of manufacturers.
This need to train a new group of skilled workers explains why federal funds in the CHIPS Act are set aside for workforce development. Complementing the federal law are programs such as America’s Cutting Edge, a national initiative that provides free online and in-person training designed to meet the growing need in the U.S. machinery and machine tool industry for skilled operators, engineers and designers.
The power of innovation
It is not practical to bring all the manufacturing back to the US Offshoring is often cheaper. But research shows that the type of manufacturing in a particular country can not only help national security, but also drive innovation.
When research and development are carried out close to physically manufactured goods, this distance can increase the possibility of collaboration between the two activities. Collaboration can lead to greater efficiency.
Product development can also benefit. A recent study shows that US companies that locate manufacturing and R&D close to each other generate more patents than companies that do not.
Even so, the contribution of US manufacturing firms to innovation fell sharply between 1977 and 2016. This is because the benefits of locating manufacturing and R&D close to each other depend on the nature of manufacturing itself, the researchers found.
For example, new drug designs often require nearby manufacturing facilities. In that respect, co-locating manufacturing and research and development makes sense. This may be true for semiconductors. Taiwan’s world-class chipmakers, such as TSMC, sit alongside a growing chip design industry, which allows designers to prototype and test new ideas quickly.
The US and other countries are betting on the same potential benefits of co-location. For example, to reduce dependence on TSMC and, more generally, on foreign sources for chips, the European Union spent 43 billion euros, while Japan encouraged chip manufacturing at home with an investment of $ 6.8 billion.
People are the bottom line
In a 2011 op-ed, I argued that even if federal legislation to promote U.S. manufacturing succeeds in bringing manufacturing back to the U.S., there is no guarantee that many jobs will be created — a key point made by those who want to promote it. manufacturing.
Governments generally cannot choose the winning technologies and industries. The government’s mistakes in choosing which industries or sectors it deems to win, in general, lead to a lot of waste of taxpayer dollars.
In fact, market forces and informed corporate decisions should, I believe, play a greater role in choosing the winner of the Federal investment. Where the investment comes from, what it supports and how much money is needed are critical questions.
If a company chooses to relocate to benefit from R&D synergies, it must be able to attract the best human resource talent. This is where US investment can help build a more skilled workforce.
As economist Gary Pisano points out, many policymakers in the US have long believed that manufacturing is an attractive sector for people with less education and training. Therefore, as a country, we do not devote many resources to training people with specialized skills in manufacturing.
This approach is in stark contrast to the approach taken in Germany. There, practical work is valued by both employers and employees, so apprenticeship programs are usually used to train skilled workers for work in the manufacturing sector. As the US approach changes with the investments recently announced by the White House through CHIPS and the Inflation Reduction Act, more is needed.
I believe that if the U.S. remains the center of the economy, then companies should not split up their workforce, sending cost-saving manufacturers overseas while retaining innovators. Companies like Apple have sent almost all of their production overseas, retaining only the most skilled parts of the supply chain that include activities like R&D.
Instead, the U.S. should financially support companies that want to produce manufacturing by making it easier for those companies to find skilled manufacturing workers at home — and to be close to innovators when practical. These efforts will strengthen the US’s ability to be independent, innovative and secure in times of geopolitical conflict.
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