June 28 (Bloomberg) -- President Barack Obama said last month he had “good news”: lost American jobs are returning to the U.S.
“For a lot of businesses,” the president said at a May 8 event in Albany, New York, “it’s now starting to make sense to bring jobs back home.”
For many other businesses, however, it still makes sense to ship them abroad. The net effect of this two-way traffic on the labor market has been virtually invisible so far and -- contrary to the administration’s claims about what is known as “reshoring” -- will be for years, manufacturing specialists and economists say.
“Our conclusion was a net zero,” says Michael Janssen, author of a new study of the trend for the Hackett Group, a Miami-based consultancy. “Some of these jobs that are coming back get a lot of press. But there are just as many that get no press coverage still going offshore.”
The president’s re-election campaign is trying to capitalize on voter angst over the cross-border flow of American jobs. In a new television advertisement, the Obama camp labels presumptive Republican nominee Mitt Romney the “outsourcer-in-chief” for his past private-equity investments in companies that moved jobs abroad, even as the president touts signs of a turnaround in U.S. competitiveness that he says is drawing jobs home.
Employers such as General Electric Co. and Caterpillar Inc. have responded to a shifting cost calculus by manufacturing in the U.S. rather than elsewhere, offering election-year hope to communities suffering persistently high unemployment.
Back From China
The White House said in January “jobs are coming back to the U.S. from a wide range of locations,” including China. A combination of rising wages for Chinese workers, a strengthening Chinese currency, and a new appreciation of the virtues of domestic production, including the availability of low-cost natural gas, explains the industrial revival, the administration says.
Manufacturers have added 495,000 jobs since January 2010, when factory employment bottomed at almost 6 million below the 2000 level, according to the Bureau of Labor Statistics. Of that 6 million, almost 40 percent were lost to other countries, either directly or because imports replaced domestic production, says Robert Scott of the Economic Policy Institute in Washington.
To be sure, ending this long-term hemorrhaging of U.S. jobs would be an economic plus, even if the number of jobs returning to the U.S. remains limited. Yet at the current pace, it would take another 25 years for the U.S. to regain all the factory jobs lost in the past dozen years.
Hal Sirkin, who wrote a 2011 Boston Consulting Group report on a U.S. manufacturing comeback, says it’s impossible to estimate how many of the new jobs were previously outsourced.
“It’s not going to be a very large number,” he said. “We’re still very early in the trend. The economics don’t really start to work until 2015.”
For every company bringing work back to the U.S., there’s another shipping jobs out of the country, a review of petitions filed with the U.S. Labor Department on behalf of displaced workers shows.
In Miami, Boston Scientific Corp. earlier this year let go the last of about 1,100 workers idled when the company moved production of its medical stents to Costa Rica.
At Honeywell International Inc. in Acton, Massachusetts, 23 positions are scheduled to disappear when manufacturing and assembly of the company’s stainless steel gauged products moves to Nanjing, China, by year’s end.
And in Oregon, Cooper Bussmann is shifting production of its electrical components to Mexico in a move that will shutter its Tualatin plant and eliminate 74 jobs.
For his part, the president has cited a Boston Consulting Group online survey that showed 37 percent of manufacturers with sales of more than $1 billion and almost half of those with more than $10 billion say they “plan to or are actively considering bringing back production from China to the U.S.”
Amy Brundage, a White House spokeswoman, said the administration “has not only highlighted the emerging trend of insourcing, but has also put forward a comprehensive plan to build on this initial progress.” One measure Obama has promoted would use the tax code to encourage manufacturers to invest more in the U.S.
Still, the White House employs an expansive definition of insourcing, including jobs that returned to the U.S. from abroad as well as new positions created as the result of improved U.S. competitiveness, according to the January report.
That fine print hasn’t always been clear on the campaign trail. “The jobs that left the United States are coming back to the United States,” Vice President Joseph Biden said March 28.
Close to Customers
Some of the best-known reshoring examples don’t involve jobs leaving a foreign location to resettle in the U.S., so much as a rethinking of the value of building products close to customers.
In February, Caterpillar, which the White House cited as an example of “insourcing” in the January report, said it would move production of small tractors and excavators from Sagami, Japan, to a new plant in Athens, Georgia, and create 1,400 American jobs.
Bridget Young, a Caterpillar spokeswoman, said none of the 1,000 Japanese workers in Sagami lost their jobs. The company moved production to the U.S. because demand for those products is now higher in North America and Europe.
NCR Corp. was included in Boston Consulting’s insourcing list after opening a plant in Columbus, Georgia, in late 2009 to produce automated teller machines, which had been made in Beijing.
Rising costs in China were “not the driving force” in the decision, says Peter Dorsman, NCR’s executive vice president for global operations, who described the move as part of a realignment of global capacity. None of the 750 Beijing workers who previously had made the machines were let go and NCR simultaneously opened a new ATM factory in Manaus, Brazil.
The U.S. government’s own data suggests the administration is overstating the potential for reshoring.
Since July 2005, when China began allowing its currency to rise against the dollar, prices U.S. buyers paid for Chinese imports have risen 4.5 percent, according to the Bureau of Labor Statistics. That’s much less than the increase in wages and the yuan would suggest.
For workers in some coastal regions, wages have risen more than 10 percent annually in recent years and the yuan has risen by 23 percent against the dollar in the past seven years.
Chinese exporters have been able to hold the line on prices by becoming more efficient. In the fourth quarter of 2011, Chinese laborers’ productivity rose 7.5 percent from the previous year, outstripping the 5.7 percent increase in unit labor costs, according to the World Bank.
Louis Kuijs, former senior economist in the World Bank’s Beijing office, says he doesn’t expect significant movement of jobs from China to the U.S. in the next decade.
“China still remains competitive in large sectors of manufacturing,” said Kuijs, now project director at the Hong Kong-based Fung Global Institute research group.
There’s also no sign of a manufacturing shift in monthly figures for trade between the U.S. and China. For 27 consecutive months, the U.S. deficit with China has been higher compared with the same month the previous year, data compiled by Bloomberg show.
“That suggests we’re losing more jobs than we’re gaining,” said Nicholas Lardy, an expert on the Chinese economy at the Peterson Institute for International Economics. “There’s a lot of wishful thinking that the era of cheap Chinese labor is over and that our trade problems with China are getting better.”
Some companies are bringing jobs back from foreign locations, including China. Three years ago, quality problems and unauthorized counterfeiting of its audio-visual mounting systems prompted Peerless Industries Inc. to bring production back to Aurora, Illinois.
The U.S. location allows the company to maintain smaller inventories and implement design changes more quickly, said Mike Campagna, Peerless CEO. Total costs in the U.S. are still 10 percent to 15 percent higher than in China, he says.
China’s cost advantage is gradually eroding, according to the Hackett Group’s “total landed cost” measure, which includes raw materials, manufacturing, transportation, inventory and taxes and duties. In 2005, production in China was 31 percent cheaper than in advanced nations. By 2013, the gap will be down to 16 percent -- small enough for U.S. production to make sense in some cases, said Hackett.
When Peerless moved production back home, the work that had occupied more than 200 Chinese workers translated into about 50 American jobs because of both higher U.S. productivity and weaker demand.
The Boston Consulting Group’s Sirkin estimates that over the next eight years 2 million to 3 million jobs could result from improved U.S. competitiveness.
“A significant chunk will be jobs that went to other countries and came back,” he said.
However, many jobs that exit China won’t all land in the U.S. Martin Franklin, chairman of Jarden Corp., whose Coleman subsidiary last year moved production of its wheeled 16-quart coolers from China to the U.S., said output of bulky products involving relatively low labor content would increasingly return to North America.
“It may not necessarily be the United States,” Franklin said in a 2011 analysts call. “It may be Mexico. It may be Canada. It may be Costa Rica and various parts of Latin America.”
Many jobs that China is losing are going to other low-cost Asian locations. Coach Inc. last year began reorganizing production to minimize exposure to rising Chinese wages. By 2015, the company aims to reduce China’s share of its production to about 50 percent from almost 80 percent today, Jane Nielsen, the company’s chief financial officer, told analysts on June 5.
New orders will be sent to factories in Vietnam, Indonesia, Thailand and the Philippines, she said. That sort of reallocation won’t do much for American workers.
“The next president of the United States -- whoever he is -- will end his term with fewer Americans working in manufacturing than he inherited,” said Tim Leunig, an economics professor at the London School of Economics.
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