By Ana Swanson and
It’s a moment of reckoning for global supply chains. But that doesn’t mean companies are flocking back to the United States.
WASHINGTON — For companies with supply chains that snake around the globe, the crises have just kept coming: First the prolonged and painful U.S.-China trade war, then a pandemic that snarled shipments, stalled international travel and shut factory doors.
President Trump and his advisers have seized on the disruptions to make a familiar case to manufacturers: Come back home.
“The global pandemic has proven once and for all that to be a strong nation, America must be a manufacturing nation,” Mr. Trump said at a Ford factory in Ypsilanti, Mich., on May 21. “We’re bringing it back.”
Mr. Trump has spent much of his presidency trying to cajole manufacturers to return to the United States, through both tough talk and policies like tariffs. His advisers have pointed to both the trade war and the pandemic as evidence that it is just too risky for multinational companies to rely on other countries, particularly China, to make their goods.
But those arguments have yet to result in a wave of factories returning to the United States. Foreign direct investment into the United States — which measures spending from internationally owned companies to start, expand or acquire American businesses — sank drastically last year, to its lowest recorded level since 2006.
Foreign-owned companies invested about half as much in the United States in 2019 as they did in 2016, the year before Mr. Trump took office. After increasing in the first two years of Mr. Trump’s presidency, the number of manufacturing jobs flatlined last yearand fell sharply with the pandemic. As of June, there were nearly 300,000 fewer factory jobs in the United States than there were when Mr. Trump was inaugurated.
For all the president’s criticisms of global supply chains, the economic incentive to outsource still prevails. While his trade policy has made doing business abroad, particularly in China, more uncertain and costly, higher wages in the United States and the lure of foreign markets mean that most global businesses are choosing to remain global. Most firms that shifted out of China to avoid the crossfire of the trade war moved to other low-cost countries, like Vietnam and Mexico. Other companies say China is a growth market they cannot afford to lose.
And while the pandemic has prompted a broader reassessment of the risks of global supply chains, it has also brought about the deepest economic contraction in generations, battering companies’ finances and forcing them to cut back on workers. Executives are deeply uncertain what demand for their products will look like in the coming months and years — hardly the environment to encourage big investments in new American factories.
The furniture maker La-Z-Boy is one example. The company shifted its production out of China to Vietnam last year to bypass Mr. Trump’s tariffs on $360 billion worth of Chinese goods, according to tracking by Panjiva, a research firm. But on a June 24 earnings call, Kurt L. Darrow, La-Z-Boy’s chief executive, announced that the economic effects of the pandemic would force the firm to make steep cuts to its work force, including in the United States.
“While we were pleased to have brought back some 6,000 furloughed workers, we made the decision to permanently close our Newton, Miss., La-Z-Boy branded manufacturing facility and reduce our global work force by approximately 10 percent,” Mr. Darrow said.
There could still be a more significant reordering of global factory activity on the horizon. The one-two punch of the trade war and pandemic has shaken the confidence of executives and investors; led to shortages of toilet paper, meat, laptops and kettle bells; and revealed hidden frailties in many companies’ business models.
As factories struggle to reopen with components still in short supply, some executives are questioning the just-in-time supply chains they use to whisk products around the globe, rather than keeping warehouses stocked — and particularly how much they rely on factories in China, where production moved en masse in previous decades.
Emily J. Blanchard, a professor at the Tuck School of Business at Dartmouth College who studies global value chains, said many firms were not thinking “in such broad and apocalyptic terms” before the pandemic.
“Covid has generated this new imagination of worst-case scenarios,” Professor Blanchard said.
Under the pressure of the trade war, some multinational companies have opened new facilities in the United States, including Williams Sonoma and Stanley Black & Decker. Taiwan Semiconductor Manufacturing Company announced in May that it would set up a new facility in Arizona, pending funding. And makers of masks and protective gear, like Honeywell and 3M, are expanding American production during the pandemic.
The Trump administration’s newly created U.S. International Development Finance Corporation may offer tens of billions of dollars to help reshore manufacturing of protective equipment and generic drugs. The administration is also considering other tax incentives and “reshoring subsidies,” potentially as part of the next stimulus package, to try to lure factories home.
But there is little data to support claims by administration officials that their trade and tax policies have already encouraged significant reshoring of manufacturing or created a “blue-collar boom.”
U.S. factory output declined throughout 2019, as Mr. Trump’s trade war intensified, and it has dropped further this year, suggesting there is no boom in new American factories. Since peaking in mid-2019, corporate investment has declined for three consecutive quarters. Total foreign direct investment in manufacturing was nearly one-third lower in the first three years of Mr. Trump’s tenure than it was in the final three years of President Barack Obama’s.
Mr. Trump ostensibly fought his trade war on behalf of American manufacturing. But economists say it has actually been a drag on most U.S. factories, by increasing prices for components and inciting foreign retaliation. It has also coincided with a plunge in Chinese investment in the United States to $5 billion in 2019, the lowest level since 2009, according to Rhodium Group, a research firm.
Some Trump officials and their supporters blame a broader global economic malaise that has dragged down factories around the world. And they point to the fact that imports fell last year and now account for a slightly smaller share of the goods consumed by Americans, as a sign of their success.
Calculations by the Coalition for a Prosperous America, a trade group that supports the administration’s policies, indicate that 30.6 percent of the manufactured goods Americans consumed in 2019 were imported, down slightly from 31.2 percent the previous year. For much of the last two decades, the trend went in the opposite direction.
There are good reasons for some companies to move out of China. Wages are rising, whittling away at one incentive to manufacture there. And deep fissures between the United States and China have opened in areas like security and technology, which could lead to more aggressive action by either side, regardless of who wins the presidential election in November.
Still, more companies leaving China does not necessarily represent a win for American workers. Like La-Z-Boy, many companies that are moving some facilities out of China — including Samsung, Hasbro, Apple, Nintendo and GoPro — are relocating to countries where wages are even lower. While U.S. trade with China fell sharply last year, imports from Vietnam, Taiwan and Mexico swelled.
For many companies, making their supply chains more resilient has actually meant spreading out production around the world, not concentrating it in the United States, said Chris Rogers, a global trade and logistics analyst at Panjiva.
“If you want to hedge your risks, you need to stay global,” he said.
Michael W. Upchurch, the chief financial officer of Kansas City Southern, which runs railroads through Mexico and the United States, said in an earnings call this year that more companies were eyeing Mexico for new facilities because of the tariffs on China and Mexico’s relatively low wages and proximity to American customers.
“There is a real desire to begin to near-shore, and Mexico’s a great place to do business,” Mr. Upchurch said. Constructing new factories would take some time, he said, “but over the next few years, we would certainly expect to see benefit.”
For other companies, China still beckons.
Purveyors of consumer products, fast food and automobiles continue to expand in China, which is home to a rapidly growing consumer market and the world’s greatest concentration of factories. Some firms have struggled to find factory space or skilled workers outside of China. Data from Rhodium Group show that U.S. foreign direct investment in China continued to rise in 2019, despite the trade war.
In May, the U.S. engineering giant Honeywell opened a new headquarters in Wuhan, the original epicenter of the coronavirus outbreak. Tesla has announced plans to expand its Shanghai factory, while Popeyes Louisiana Kitchen, Walmart and Costco are planning new stores in China.
Some executives insist that, contrary to popular belief, their investments in China allow them to employ more workers in the United States.
Milliken & Company, a textile maker with headquarters in South Carolina that employs 8,000 people, still performs the bulk of its manufacturing in the United States. It resisted a wave of offshoring in the 1980s and ’90s by shifting into niche products, like floor coverings and military uniforms. But it has opened factories in China in recent years to serve that market, enabling it to hire more people back home, said Halsey M. Cook Jr., the company’s chief executive.
“I think you’d hear the same thing” from other major multinational companies, Mr. Cook said, like John Deere. “Global supply chains are complicated. When you’ve seen one, you’ve seen one.”
Jeanna Smialek contributed reporting.