Comment by elbasti
12 days ago
Like OP, I work in manufacturing (after 15 years in startup land). I'm not as experienced as him, but I work in manufacturing that makes similar products on both sides of the US/Mexico border.
Let me add some thoughts:
1) Capacity, not cost, is the main driver for nearshoring. All things being equal, a manufacturer would rather produce a product in the US than overseas. The cost of modern products is mostly parts & material, not labor. When you add logistcs expenses, the theoretical cost advantage of overseas vs local is not that great. Remember:the people on the other side of the border are capitalists too! They want to keep most of the surplus of nearshoring to themselves! The problem is that there simply is no capacity, both in facilities and especially in people.
2) What matters even more than capacity is the first derivative of capacity. In other words: how quickly can I spin up a new factory if I win a big deal? How quickly can I spin one down if the client goes away? How long will it take me to get a permit to connect my new factory to the highway? In the US, these costs and timelines are massive. Real estate, permitting, hiring. There is an order of magnitude difference here, in cost and time.
3) The labor problems are real. I don't want to disparage the american workers I work with, because they are amazing. Truly fantastic craftsmen. But they are hard to find. You'd be surprised how many people show up who can't read or can't read a tape measure. How hard it is to find people that want to work 8 hours a day, 5 days a week. By contrast, in our overseas facility we have qualified workers literally showing up at our gate every day asking for work.
In other words, the root cause problems with american manufacturing are—-surprise surprise!--the same problems as with other parts of the US that are in decay:
- Disfunctional local government, especially around permitting, construction, housing and transit
- Disfunctional education & healthcare systems.
- A lack of strategic investment in infrastructure (rail, highways)
- A social safety net that is totally out of whack, with a high cost burden for employers & employees, with little to no immediate quality-of-life benefits for the working population
Tariffs solve exactly zero of those probems!
The cost of manufacturing your stuff is not labor dependent only because you are probably putting together low cost components made with cheap labor. What if you had to make the spring or the resistor or the little painted metal box? Could you do that without labor being the big cost?
I actually make pretty high cost products with relatively expensive labor (welders, electricians).
Even then, materials & parts dominate.
What? How much labor do you think goes into making a spring or a resistor? These are parts which cost fractions of a cent and are cranked out by the tens of millions.