“Hollowing Out” in U.S. Manufacturing
Hollowing out is the deterioration of a country’s manufacturing sector when producers opt for low-cost facilities overseas. The economies of Japan, US and other more developed nations are being hollowed out, posing a threat to full employment and local SCs. Coming out of the Second World War, the whole focus for the US innovation system was on early-stage R&D, not manufacturing. Production was the last thing to be worried about, since US were the king. Nobody was remotely close to US, by resting on its laurels, therefore, the US lost its lead, most of the jobs that were lost were in the lower end of production, as opposed to higher skilled jobs
Most valuable company in the US who did design in the US, it did distribution in the US, but it didn’t manufacture anything in the US. Everything was manufactured in China, so the question across industry was: ‘Why don’t we all follow that model?’ That underpinned how people saw manufacturing.”
The valuable activities could remain and would remain in the US. The rest of this commodity activity could happen anywhere else in the world, wherever low wages were, this fed into a stigma that surrounded the manufacturing industry and particularly jobs in the manufacturing industry – that it was unskilled labor that should perhaps be left to lower-wage, less-developed nations.
Biden Plan to Ensure the Future is
“Made in all of America”
by All of America’s Workers
• BUY AMERICAN. Make “Buy American” Real and Make a $400 billion Procurement Investment
• MAKE IT IN AMERICA. Retool and Revitalize American Manufacturers
• INNOVATE IN AMERICA. Make a New $300 Billion Investment in Research and Development (R&D) and Breakthrough Technologies
• INVEST IN ALL OF AMERICA. Ensure Investments Reach All of America so draw on the full talents and invest in the potential of all communities and workers.
• STAND UP FOR AMERICA. Pursue a Pro-American Worker Tax and Trade Strategy
• SUPPLY AMERICA. Bring Back Critical Supply Chains to America
A comprehensive and ongoing process to evaluate and protect key U.S. supply chains, starting with a 100-day supply chain review
Leverage federal buying power and the full range of government authorities, including the Defense Production Act, BARDA, and federal procurement, to make sure that make critical products in America.
Change the tax code to eliminate the incentives for pharmaceutical and other companies to move production overseas and establish new incentives for companies to make critical products in the U.S.
Rebuild critical stockpiles, ensure adequate surge manufacturing capacity in times of crisis, and regularly review supply chain vulnerabilities.
Work with allies to reduce their dependence on competitors like China while modernizing international trade rules to secure U.S. and allied supply chains.
China’s pushing very hard on innovation in production.
Increasingly fierce and acrimonious competition with China is being played out in numerous sub-sectors of manufacturing, especially semiconductors (which are used in a vast plethora of electronic devices).
That is a sector that developed in the US and that the US historically has led – and is still a major export sector for the country – but China is throwing an ocean of money to try to dominate it, because it is such a core technology.
China’s Ambitions – Seizing the Fourth Industrial Revolution
China’s Advantages – What China Thinks it Does Better than the United States
Chinese Communist Party believes that the world has entered a period of “great changes unseen in a century.” At the core of these changes is a shift in the balance of power between the United States and China, and one key driver of that change is the onset of a new round of technological innovation.
China believes it is well-positioned to outcompete the United States in the competition for the Fourth Industrial Revolution and that it has four main advantages:
Heavy investment in R&D
Superior institutions and industrial policies supporting China’s ambitions
Manufacturing prowess and centrality to global supply chains
A more robust operation to set the global technology standards that could determine the future of key industries.
China has released more than 100 science and technology plans:
AI by 2030; In standard setting by 2035; Made in China 2025
which targets ten high-tech industries: information technology; smart manufacturing; aerospace; maritime engineering; advanced rail; electric vehicles; electrical equipment; new materials; biomedicine; and agricultural machinery and equipment.
Made in China 2025 seeks to indigenize these key technologies, gain favorable positions in global supply chains, win market share within China, and ultimately capture global market share from foreign markets. To do so, it wields the full power of the state and the market power of the Chinese economy to elevate local champions over their high-tech foreign competitors globally, with specific quotas set in each industry for China’s anticipated share.
Global transport crisis with Limited alternative
Trade surplus furthers container imbalance
An ‘aggressive’ fight over containers is causing shipping costs to rocket by 300%
SINGAPORE — A critical shortage of containers is driving up shipping costs and delays for goods purchased from China.
The pandemic and uneven global economic recovery has led to this problem cropping up in Asia, although other parts of the world have also been hit. Desperate companies wait weeks for containers and pay premium rates to get them, causing shipping costs to skyrocket.
This affects everyone who needs to ship goods from China, but particularly e-commerce companies and consumers, who may bear the brunt of higher costs.
China is sending out a lot more exports to the U.S. and Europe than the other way round. Its economy bounced back faster as the virus situation within its borders was basically under control by the second quarter of last year. Containers are stuck in the West when they are really needed in Asia. There are about 180 million containers worldwide, but “they’re in the wrong place.
Global markets are underestimating the demand for the reopening rebound
While Chinese factories quickly returned to normal operations, an unexpected increase in American demand for goods during the work-from-home era discombobulated traditional trade patterns.
The magnitude and pace of the recovery have caught everyone by surprise. The sudden recovery in trade volume has seen virtually all the major shipping lines needing to add significant container capacity to address the container shortage issue.
Making matters worse, orders for new containers were largely canceled during the first half of last year as most of the world went into lockdown.
The shortage is further exacerbated by limited air freight capacity. Some high-value items that would normally be delivered by air, such as iPhones, now must use containers via sea instead.
International flight volumes have plunged due to virus and travel restrictions.
The lack of options, combined with this crazy amount of demand, has produced this crisis.
The surge in demand worldwide for logistical services at this time has resulted in a global shortage of shipping containers, congested seaports, capacity constraints on vessels, and even lockdown in certain markets, amongst other challenges.
Delays rippling from Chinese ports to ocean carriers to American ports, truckers and railroads are upending companies’ plans.
The massive cargo carriers must wait at anchor for days before disgorging their cargo. Once on land, containers frequently idle in temporary storage while awaiting space on an outbound truck or train, incurring additional costs. Inland rail yards have emerged as the latest pain point for companies trying to move goods internationally. Containers have piled up by the thousands as without enough chassis by the flood of cargo has overwhelmed the system. Rather than a single movement from train to truck, containers now are lifted off, placed in storage and then moved a second or even third time before eventually exiting the yard.
Shippers faced major fallout from Suez Canal chaos and Yantian port congestion surpasses the Suez Canal blockage in terms of boxes blocked.
Ports of Long Beach, Los Angeles to issue surcharge to ocean carriers whose cargo lingers at terminals. Ocean carriers with lingering cargo will initially be charged $100 per container, with daily incremental increases.
While Chinese factories quickly returned to normal operations, an unexpected increase in American demand for goods during the work-from-home era discombobulated traditional trade patterns
American businesses rely heavily on China
For the past 30+ years, the mantra was just-in-time and lean manufacturing.
Focused on discovering and securing the lowest cost supplier possible, regardless of the source. Limited attention was paid to considering the geographic location, ethical practices or political environment of the companies from which critical components were sourced.
Global defaulted to sourcing heavily from the manufacturing center—China.
Just-in-time and lean manufacturing meant companies no longer had to keep safety stock from key supplies or even finished goods on hand.
That all fell apart when factories across the globe were forced to close, depriving companies of a steady supply of necessary raw materials and key components.
Get Great Business Tips to Your Mailbox. Subscribe
InnoGlobal Business Consulting