How to Make a Blacker Friday

This Black Friday is likely to be a particularly bleak one for patriotic-minded U.S. Christmas shoppers. From perennial bestsellers like the iPhone and Legos, to this year’s new arrivals like the Kindle Fire and the MyKeepon musical robot, the most popular gifts this year all seem to be manufactured overseas. This may be the season that U.S. retailers pull themselves back in the black, but it looks like another grim winter for American manufacturing.

Or is it? You might not yet see the evidence on the shelves at Wal-Mart, but with a bit of good policy and good luck, U.S. manufacturing may well experience a renaissance over the next decade.

A recent report from Booz and Company, based on a sector-by-sector analysis of U.S. industry, concludes that, in principle, the American market could be supplied most economically by factories located in the United States in about 90 percent of all manufacturing industries. For the ten percent of industries like apparel and shoes that are truly labor-intensive,  off-shore production is fully justified. On the other hand, U.S. manufacturers are already competitive in about 45 percent of manufacturing industries — microprocessors and polysilicon, for example — not only in the North American market but globally. As for the remaining 45 percent — a category that includes such industries as machine tools and optical fiber — Booz and Co. conclude that there’s no reason U.S.-based manufacturers couldn’t effectively compete to supply the U.S. market, if only corporate executives, labor, and the U.S. government worked together to optimize productivity and minimize costs.

One of the main obstacles in reaching this type of cooperation, may be overcoming the conventional wisdom that there’s no way for companies to turn a profit by manufacturing in the United States. But as the following five examples of companies both large and small show, it’s not only possible, it’s already happening:

Intel

The company that produces more than 85 percent of the microprocessor chips that power the world’s computers makes most of them in the United States. Making these chips is not labor intensive because it’s mostly  high-tech robots in sealed factories — inexpensive Asian workers provide no particular advantage in their production.

The economies of scale, the high quality, and the high productivity generated by Intel’s large U.S. facilities in New Mexico, Arizona, and Oregon and its highly-skilled and experienced work force make the United States the most competitive place in the world on an operating-cost basis to make these chips. Of course, there are important Asian microchip producers like Korea’s mighty Samsung, but without special financial subsidies like tax holidays, free land, and capital grants their cost competitiveness is no better and often worse than that of U.S. based producers.

Caterpillar

Just last week, it announced that it is moving production from of its compact machines from Japan back to the United States in order to be able better to serve the markets of North America, Europe, and the Middle East. This represents a kind of historic shift. I was living in Japan in the 1960s and 1970s when Cat began producing these machines there on the grounds that Japan-based production was more cost effective.

Caterpillar executives say the demand for small tractors and semi-hydraulic excavators, once primarily came from job sites in Japan’s cramped urban centers, but the majority of the customers are now in North America and Europe. The new facility is expected to create as many as 1,000 new jobs. The company also opened a new plant in Winston-Salem, North Carolina,  this week.

Air Liquide

This French manufacturer produces industrial gases like liquid oxygen, carbon dioxide, and liquid nitrogen that are used in the steel, oil, and natural gas industries. Just two weeks ago, it started up its new factory in Rancho Cucamonga, California, to better supply increasing demand for its products in the southwest United States. This factory will double the company’s production capacity in America, along with its U.S. workforce.

The U.S. Auto Industry

Cars, of course, are not products you never think of. In fact, you think of them all the time — and for the past 40 years you probably thought of them as being better and less expensively made abroad for export to the United States. Now, however, America has suddenly become the place where all auto companies, both U.S. and foreign, want to make cars. For example, Ford Motor Company is bringing production of its Fusion model back to Flat Rock, Michigan, from Mexico despite the fact that its Mexican workers are paid $3.35/hour compared to the more than $33/hour earned by its Flat Rock workers. Honda is investing more than $300 million to expand production of light trucks and engines at its Alabama factory. Chrysler is investing $1.7 billion to develop a new Jeep and upgrade its Toledo, Ohio, production facilities that will employ 1,100 new workers. General Motors is expanding its former Saturn assembly plant near Knoxville, Tennessee, to make the Chevrolet Equinox. This will bring 1,900 new jobs to the state. GM is also expanding production of the Chevy Volt. It plans to make 60,000 of them next year at its venerable Hamtramck plant in Detroit; 15,000 will be exported.

Bob’s Space Racers

The Daytona Beach company, an industry leader in arcade gaming with business  in every state and 118 countries, is bringing production of the Whac-A-Mole game back from China. Why? "The costs are more equal now, so we’re able to manufacture some of those products in the United States," says CFO Mike Lane. "Labor costs in China are increasing. Shipping across the ocean is expensive. Plus, we have better quality control in the U.S."

Lane and his colleagues found that the travel and verification costs of manufacturing outweighed the advantages of cheap labor. Now, Whac-a-Mole is being brought back to the United States where it was first developed over 40 years ago.

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So the force may be with U.S. manufacturing after all. But for the "re-shoring" wave to really build momentum, the government needs vigorously to offset the currency manipulation and match the financial investment incentives that lure U.S. companies toward manufacturing abroad. For example, Washington should take steps to impose countervailing duties on imports that are being indirectly subsidized by currency manipulators, who buy dollars on a steady basis in order to drive up the exchange rate of the dollar — thereby making U.S. imports cheaper and exports more expensive than they ought to be, based on market forces. And Washington should also coordinate with state economic development offices to and arrange to match the free land, capital grants, and tax holidays that countries like China, Singapore, and France use to lure investment and production that should remain in or go to the United States based on the dictates of market forces.

Maybe the Obama administration and U.S. economists and business leaders will wake up to this potential in the coming year. Now that would be something to really be thankful for.