The Onshoring Trend Is Phony

On Friday August 6th, no less an authority than the president himself heralded a USA Today front page story headlined: "Some manufacturing heads back to USA." I watched CNBC that morning -- the July unemployment figures were just out -- and its anchors also trumpeted the news. So did the House Democratic leadership, which viewed the headline as a positive development and vindication of its recent focus on manufacturing. I don't blame any of these folks for trying to squeeze the good news out of an otherwise horrible day of economic news, but it turns out that exactly the opposite is happening,

Turns out they were all misinformed. Actual hard data released by the Federal Reserve Bank of Philadelphia today shows that onshoring, in fact, has declined over the past two years. Only 4.5 percent of manufacturers surveyed indicated that they had brought work back to the U.S. since the beginning of the year, compared to 6.2 percent in a survey two years ago. On the other hand, offshoring continues at a higher, though slightly diminished, pace: 9.7 percent of companies indicated that they had offshored work, compared to 11.1 percent two years ago.

There's an explanation for why this "onshoring" myth has been perpetuated: it's what multinational companies want you to think. These companies know that "Made in America" is a label that sells once again. Even KIA -- the Korean automaker -- advertises its minivan as being made in the USA.

Companies know that they risk a consumer backlash if they offshore work. A survey done for the Alliance for American Manufacturing by Mark Mellman and Whit Ayres shows that the American people have an overwhelmingly negative view (83 percent unfavorable) of companies that ship jobs to China. So, corporations like General Electric and NCR build consumer goodwill by heralding an onshoring event. They don't tend to publicize offshoring.

The USA Today story, on which all this hysteria was based, focused on a few anecdotes of companies moving production back to the United States. My contribution to the story was simply to say that onshoring was a "trickle, not a flood," and that "there's still more going out than coming in." The Philadelphia Fed numbers confirm this, as does our astonishingly high trade deficit, which was nearly $50 billion for the month of June alone.

So, how do we really make an onshoring trend a reality? It will take far more than what either the Obama Administration or the Congress have proposed so far. First, we need to stop China's cheating on currency. This isn't protectionist -- far from it. Even free trade economists like Paul Krugman and Fred Bergsten support a strong response. Those who say China has the leverage in the relationship are completely mistaken: they need our market more than we need their debt financing. We'll create as many as 1.5 million new jobs by moving China to a market-based exchange rate, at no cost to our Treasury.

Second, we need a real manufacturing strategy. "Made in America" must be more than slogan -- it must be the purpose of our economic policies. It will take real investment in our crumbling infrastructure and our workforce to make this a reality. Beyond that, we'll need to unravel decades of neglect by ensuring access to capital through innovative ideas like a government-backed infrastructure bank and manufacturing investment bank that would leverage private capital. We'll also need a trade policy where the goal is balanced trade, and not simply loading up our shelves with more made in China consumables.

Onshoring is possible. America possesses enormous advantages -- highly skilled workers, abundant natural resources, amazing entrepreneurship and innovation -- but if we don't stand up to China and also get our own house in order, onshoring will remain a myth.