Monday, September 26, 2022

US reshoring initiative resets globalization

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A deep dive into how the US restoring initiative reset globalization.

The pandemic and recent geopolitical tensions are resetting the world in many ways and reversing how countries and organizations have been doing business around the world. Globalization which has always driven world trade, went on steroids from around 2001 when China joined the World Trade Organization and propelled it to an advanced economy; it also benefitted India but now looks to be on the retreat as a re-shoring move sweeps over major economies like the US.

US trade deficit at a record high

The United States, the world’s largest economy with a GDP of over $23 trillion, is also the largest consumer of products and services from the rest of the world. In fact, it buys more than it sells. The US goods trade deficit reached a record $1.09 trillion in 2021—an increase of $168.7 billion (18.3%) from the 2020 trade deficit—according to new US Census Bureau data, and one-third of it is with China. The broader goods and services deficit reached $859.1 billion in 2021, an increase of $182.5 billion (27.0%). These records were driven by a $576.5 billion increase in goods and services imports, including a $501.8 billion increase in goods imports.

The surge in the US goods trade deficit extends a surge in offshoring that has eliminated more than 5 million manufacturing jobs and nearly 70,000 factories since 1998. This has promoted the US government to start its own ‘Atmanirbhar’ self-sufficiency program, the ‘Reshoring Initiative’, which aims to bring significant pieces of manufacturing activity back to the United States. The initiative aims to create 350,000 jobs in the US this year alone.

Resetting globalization

This move, of course, goes against globalization, which has been a tailwind for investors and large companies for much of the past 30 years, particularly US firms. Increased trade across borders boosted profits and productivity and allowed countries to focus on the goods and services they were best equipped to produce. Globalization has also provided multinational companies with new customers and new pools of low-cost labour.

But the Covid-19 pandemic, which snarled supply chains worldwide, pushed many executives to think about bringing their business closer to home. Russia’s invasion of Ukraine, which upended commodities markets, is another motivator. So is the possibility of a conflict between China and Taiwan, which produces the chips used in smartphones, personal computers, and cars.

CHIPS Act

The US government responded to this threat with the Chips and Science Act and the Inflation Reduction Act, both passed this month, providing tax breaks and other incentives for building and investing in manufacturing centres for goods such as semiconductors, electric vehicles, and pharmaceuticals.

US-China trade has always been a politically sensitive subject and has now been weaponized by both countries in an attempt to stay in the lead in global economics. Due to the trade deficit with China, 3.4 million jobs were lost between 2001 and 2015, including 1.3 million jobs lost since the first year of the Great Recession in 2008. Nearly three-fourths (74.3 per cent) of the jobs lost between 2001 and 2015 were in manufacturing (2.6 million manufacturing jobs displaced).

The growing trade deficit with China has cost jobs in all 50 states and the District of Columbia and in every congressional district in the United States. The trade deficit in the computer and electronic parts industry grew the most, and 1,238,300 jobs were lost or displaced, 36.0 per cent of the 2001–2015 total.

US lacks ‘new collar’ skills

But to create new jobs, the US would need the right skills to deliver on the projects. Employers of all sizes are finding the greatest challenge facing them continues to be recruiting qualified high school and college graduates with the career-ready skills to join the “new collar workforce”.

Currently, public education is trapped in an academic paradigm that has been increasingly irrelevant to blue-collar trades and now the “new collar” workforce. While some of these new collar jobs require a college education, most are “middle-skill” jobs requiring a high school diploma, foundation in reading, math and science, along with some additional training offered by apprenticeship/certification programs. The academic paradigm emphasizes intellectual knowledge; the new paradigm emphasizes know-how and skills.

Companies want graduates with an eye for detail, creative, critical thinking skills, a collaborative mindset, and an ability to deal with ambiguity and complexity. New graduates will need foundational skills in reading, writing, math and science who know how to think – not what to think; regardless of whether students are headed for college or the new collar workforce, this type of “learning that works” will help them prepare for their future. The manufacturing skills gap in the US could result in 2.1 million unfilled jobs by 2030, according to a new study by Deloitte and The Manufacturing Institute. The cost of those missing jobs could potentially total $1 trillion in 2030 alone.

Will IT outsourcing be next?

However, despite the ambitious goals of the ‘Reshoring Initiative’, the broad shift might not be an outright win for blue-collar American workers. Increased capital spending suggests many companies could be looking to replace overseas workers with technology rather than with US-based workers. For countries like India, the question is, will IT outsourcing be next?

Also Read: Amazon poised to transform pharma, logistics, payments, small business lending

(Abhijit Roy is a technology explainer and business journalist. He has worked with Strait Times of Singapore, Business Today, Economic Times and The Telegraph. Also worked with PwC, IBM, Wipro, Ericsson.)

(Disclaimer: The views expressed in the article above are those of the author’s and do not necessarily represent or reflect the views of Autofintechs.com. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.)

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