Reviving American manufacturing

After years of tense trade negotiations and the outbreak of the COVID-19 pandemic, I didn’t think U.S.-China relations could get any worse. Wrong.

The ongoing skirmish escalated to a new level last week as the Trump administration ordered the closure of China’s consulate in Houston. Two days later, China closed America’s consulate in Chengdu. Tit for tat.
At the same time, Secretary of State Mike Pompeo hammered the Chinese Communist Party (CCP) in a blistering speech at the Richard Nixon Presidential Library in Yorba Linda, California. “Today, China is increasingly authoritarian at home, and more aggressive in its hostility to freedom everywhere else,” said Pompeo.

And let’s not forget Attorney General William P. Barr’s harangue on corporate America on July 17 at the Gerald R. Ford Presidential Library in Grand Rapids, Michigan, where he called out Cisco, Disney, Google, Yahoo and Apple as “willing” pawns being played by the CCP in exchange for a few bucks.

Corporate America, you have been warned. You will have to make some tough choices: Fall in line with anti-China sentiments and bring manufacturing back to the U.S., or stay the course and hope all this saber rattling dies down and that life—somehow, some way—returns to a semblance of normalcy.
 
But can a manufacturer simply close shop and exit China?

China possesses—hands down—the best industrial infrastructure, vertically integrated supply chains and business-friendly safety and environmental regulations in the world. They also have an experienced, educated work force with a “can do” mentality. This combination just can’t be beat. At least not easily.

So, can the Apples, 3Ms and Boeings of the world really walk away? Possibly, but a few things will have to change.

Rethink “boring” manufacturing jobs
For one, America’s perception of manufacturing has to change. I still remember when a UCLA finance professor in the early 90s questioned my desire to work in the industry. “Why on earth would you ever want to go into manufacturing?” he asked. “It’s a dead-end job. Plus, factories are moving to China. Think about a career on Wall Street.”

So off I went, along with thousands of other eager graduates, to the investment banks to strike it rich. Others went to find careers in accounting firms, the film industry, high tech and the Internet of Things. Manufacturing companies weren’t on our lists. They weren’t sexy enough. Too boring, too Midwestern.

Randy Altschuler, CEO of the manufacturing-on-demand service provider Xometry and a 2010 Republican candidate for Congress in New York, told me, “We lost the manufacturing skill sets years ago. We just didn’t put the profession in high esteem like other countries. Until that happens, manufacturing can’t come back.” Altschuler feels American manufacturing needs a complete makeover if we hope to have another heyday: “We treat first responders and hospital workers as heroes. Likewise, manufacturing professionals should share similar status. Only then will we get the brightest talent and new innovation.”

More than 20 years after I was in college, American students are still being discouraged from manufacturing careers. While the U.S. graduates about 70,000 engineering students annually, China sends more than nine times that number to work in manufacturing each year. The U.S. has a long way to go.

Losing overseas talent
To offset the dearth of homegrown engineers and scientists, the U.S. relies heavily on foreign students, particularly from India and China, but that will soon change. In May, President Trump issued an order to ban Chinese graduate students who have ties to the CCP from studying STEM (science, technology, engineering, and math) subjects in the U.S.

Over 80,000 Chinese graduate students, as estimated by the Department of Homeland Security, are currently enrolled in STEM programs in American colleges and universities, with the vast majority of them wanting to stay, live and work in the U.S.
 
It’s a “one-step forward, two-step backward” process. While Congress pushes to bring back supply chains, the administration is thwarting those efforts. Rather than dissuade foreign talent from entering the U.S., let’s do everything possible to attract overseas STEM students, as well as guarantee the most talented ones a path to permanent residency and citizenship.
 
Without the influx of foreign talent, and the continued downward spiral of the number of domestic STEP professionals, American will never regain its manufacturing supremacy.

Don’t live in the past
We’re living in the past if we think we can simply revive the industries—rare earths, medical supplies, printed circuit boards—that we gave up for dead twenty years ago and ride them into the future. I understand we need to do it for national security and defense, but let’s be clear: These once-great, nearly forgotten American industries will never compete commercially on the world stage.

Industry expert Jack Lifton doubts whether the U.S. can ever fully re-shore rare earths. “Sure, we’re experts at mining and getting the minerals out of the ground,” says Lifton. “But that’s only part of the problem. There are so many other processes—the concentrating, separation, refining and then finally to the actual finished product. We lost each of these stand-alone skill sets long, long ago.”

Lifton, I think, hit the nail on the head. Making something isn’t just about making that one something. Whether it’s producing rare-earth magnets, razor blades or air conditioners, the complete, vertical integration from raw materials to final testing must be considered. The U.S. not only lacks the time, money and experience to reinvent the wheel, but also the spokes, hubs and rims as well as the rubber and metal alloys.

Let’s keep in mind the most important part of the supply chain: the customer. Headquartered in Ontario, Canada, Escalator Handrail Company (EHC), a supplier of subcomponents like handrails, rollers and elevator belts to the vertical transportation business, moved its manufacturing operations to China at the behest of its customers. “It would be virtually impossible for us to move back to Canada,” explains EHC’s long-time CEO and founder Ronald Ball. “Our whole ecosystem is in China, our many suppliers, customers, market and future. Look around China at the new airports, transit systems and skyscrapers.”

Look to the future
As the saying goes, “Use it or lose it.” We haven’t used “it”—our manufacturing muscle—for a generation. So, except in the case of national security, let’s give up the notion that we can relive the glory days and competitively produce what we used to, from antibiotics to lawn mowers.

Look to the future instead. There’s endless possibility in new products and technologies like electric vehicles and batteries, composite materials, robotics, artificial intelligence, nanotechnology and avionics and aviation. Concentrate on those – that’s how we will bring manufacturing back to America.

Forget the past. Forget what was lost. American ingenuity thrives on the belief that with enough grit, anything and everything can be accomplished, built or discovered.

When I fathom the potential of new technologies and the re-imagining of the “Manufacturing of Things,” I’m reminded of my favorite politically incorrect and oh-so-American cartoon character, Yosemite Sam, exclaiming to Bugs Bunny, “There’s gold in them thar hills!” My advice to corporate America?  Train a few hundred thousand engineers and scientists and start digging!

Stanley Chao is the author of “Selling to China,” (2018) and managing director for All In Consulting, assisting western companies in their China business strategies. He can be reached at [email protected]. Follow Chao on Twitter, @stanleychao6.
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