Is U.S. Industrial Renaissance Built To Last? Problems Overseas Indicate it's 'Here To Stay.'

Sussex, Wis.— At a family-owned manufacturer 30 minutes northwest of Milwaukee, robots work alongside people making medical devices, sporting goods and household products.

Some of the items at Sussex IM were previously made by companies in China. Now, through a blend of factory automation, skilled labor, and other advantages, the work can be done affordably in Wisconsin, which remains second only to Indiana among states with the highest concentration of manufacturing jobs.

"We're seeing more companies that want their products made in the United States again. The pendulum swung to Asia 20 years ago, and now it’s finally swinging back some, " said Megan Tzanoukakis, Sussex IM president and chief executive officer.

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More than 200 years ago, the steam engine transformed American factories. Today, U.S. manufacturing is at another historic moment, this time driven by multiple forces, national and global.

The critical question going forward: Can this nascent U.S. industrial renaissance last?

“While it sounds like an election-year bumper sticker, the phrase ‘Made in America for America’ could describe the foreseeable future of manufacturing in the Western Hemisphere,” said Patrick Van den Bossche, a partner in Kearney, a Chicago-based global management consulting firm that works with more than three-quarters of the Fortune Global 500 companies and has more than 5,700 employees in 40 countries.

Much of the U.S. growth is fueled by billions of dollars in government and industry spending for microchip plants, clean energy and electric vehicles. New technologies have enabled American companies, like Sussex IM, to be globally competitive for a wide range of manufactured goods.

Consumers are starting to "buy American," according to Kearney. The firm's U.S. Self-Sufficiency Index, which tracks what's made in the United States for the U.S. market, gradually declined from 2013 to 2020, but has since been on the rebound. It increased 5% between 2022 and 2023.

U.S. companies are weary of supply chain risks that were always part of doing business overseas and became more pronounced during and after the COVID-19 pandemic. Companies that two decades ago were racing to outsource their manufacturing to Asia, especially China, have made the decision to source products closer to home, perhaps in Mexico if not the United States. They are increasingly anxious about tensions between the U.S. and China.

American CEOs may no longer be able to straddle the line over U.S. differences with China, said Bill Holstein, author of the book Battlefield Cyber, and former editor-in-chief of Chief Executive and Directorship magazines.

"Starbucks can sell as much coffee as it wants in China, and it doesn’t pose a security threat to the United States," he said. "But having Microsoft in China, developing software products and writing code, is clearly a threat."

For now, it's fair to say that reshoring, or the return of manufacturing from overseas, is still not for everyone.

A big reason why companies left the U.S. — high labor costs — remains an issue that's been compounded by worker shortages and skills gaps. "The most frequent comment or question I hear is, 'Where are we going to get the workforce?' We don't have enough people to fill the jobs we have now," said Harry Moser, founder of the Reshoring Initiative, a nonprofit that promotes domestic manufacturing.

“The most frequent comment or question I hear is, ‘Where are we going to get the workforce?’ We don’t have enough people to fill the jobs we have now.”

—Harry Moser, founder and president of the Reshoring Initiative

But for others, major geopolitical events overshadow everything else, said Jon Gabrielsen, a manufacturing strategy consultant from Ann Arbor, Michigan, with more than 40 years experience in the field.

U.S. companies — and by extension, much of the economy — are vulnerable because of their reliance on Asian microchips. In the event of a war between the U.S. and China, or between China and Taiwan, microchip plants would be high-profile targets, much like steel-bearing plants were in World War II, and supply chains would be severed.

Without microchips, smart weapons and “civilian manufacturing in the West ceases," Gabrielsen said.

For reasons including national security, he's urged companies to start planning now to be out of China and Taiwan within 10 years. If they leave and a conflict never arises, supply chains would have been made stronger nonetheless.

"It isn't that hard in concept, but it's a lot of work. Take those first steps now," Gabrielsen said.

Smart immigration, industrial policies are crucial

The early 2000s were especially devastating for U.S. manufacturing, with the loss of about one-third of the sector's jobs between 2000 and 2010. Small and medium-sized companies were hit especially hard, and even tightly run firms like Sussex IM experienced layoffs.

China eventually dethroned the U.S. as the world’s top manufacturer.

That should have made Americans nervous, said Kurt Bauer, president and CEO of Wisconsin Manufacturers & Commerce, the state’s largest business organization. If it didn't do so immediately, it should have, Bauer said, "after 2020 when we realized the U.S. is dependent on nations like China for the production of medical supplies needed to mitigate a global pandemic.”

With the right public policies, he believes losses can be reversed.

“It is essential to level the playing field with all or most countries, not just China. Otherwise ... the U.S. will be less dependent on China, but still vulnerable to disruption and militarization of the western Pacific.”

—Harry Moser, founder and president of the Reshoring Initiative

“Just as it was once cheaper to manufacture a product in Asia and ship it to America, it can now be competitive to make it in America and ship it to Asia, if we have the political will to embrace key advantages,” Bauer said.

Worker shortages are challenging but solvable.

“If we have the right immigration policy, we can attract the best and the brightest, lower skilled, medium skilled and highly skilled. We control our own destiny,” Bauer said.

Moser, with the Reshoring Initiative, said the federal government also needs an industrial policy aimed at reshoring a broad range of industries.

"It is essential to level the playing field with all or most countries, not just China," he said. "Otherwise, work will flow from China to Southeast Asian factories often owned by the same Chinese companies. The U.S. will be less dependent on China, but still vulnerable to disruption and militarization of the western Pacific."

Companies can operate globally, manufacture locally

Generac Power Systems is one of those quintessential Wisconsin companies that operates globally but has manufacturing plants in Oshkosh, Berlin, Jefferson, Eagle and Whitewater. It has a $35 million factory under construction in its sixth Wisconsin community — Beaver Dam — which will employ up to 400 office and production employees.

The Waukesha-based company, founded in 1959 as a manufacturer of portable generators, had a near-record $4 billion in sales in 2023. Say the name Generac, and most people immediately think of generators used for backup power at home, in businesses, or in places like construction sites.

However, the company has grown to become much more than that. Its products now include energy storage systems and energy management equipment. It operates in 150 countries and has manufacturing plants on four continents. Up to around 20% of the company's sales are now outside the United States.

"That's a huge change for us," said Generac president and CEO Aaron Jagdfeld.

The company's global presence, while essential for growth, has increased its risk for supply-chain disruptions. On a trip to China last fall, Jagdfeld said, he felt the strain in relations with the United States.

To lessen risks in any one country, Generac has expanded its manufacturing and supply chain to Taiwan, Vietnam, Japan and other places. It has a plant in Mexico as well as extensive manufacturing in the United States.

The company returned to Wisconsin the production of a critically important generator component, an alternator, that was made in China for about 20 years. The move afforded management more control over the work and rekindled knowledge of the product design.

"We felt like we were starting to lose that institutional knowledge around not only how to manufacture it, but just the design of it as well," Jagdfeld said. "I think the reshoring effect was a really important lesson for us."

To compete, U.S. companies push for a level playing field

Few U.S. companies have been more impacted by global events than Oshkosh Corp., a manufacturer of military vehicles and Wisconsin’s largest defense contractor.

During the U.S. war in Afghanistan, then-Defense Secretary Robert Gates praised the company for its dramatic buildup of a new class of all-terrain troop carrier better equipped to protect its passengers from roadside bombs and ambush attacks.

"The last time that American industry moved from concept to full-rate military production in less than a year was World War II," Gates said while touring the Oshkosh factory in November 2009.

In August 2015, the U.S. Army selected Oshkosh for its largest contract award in years, a program the government estimated to be worth $30 billion, through 2040, for a vehicle that would replace the Army's Humvee. That Joint Light Tactical Vehicle (JLTV) program has supported thousands of jobs in Wisconsin and other states.

Last December, the Israeli Ministry of Defense placed orders for dozens of JLTVs. Earlier, Ukraine's Army ordered $201 million in military trucks from Oshkosh.

But while the company has responded well to global events, a trade dispute with China tested the mettle of its JLG Industries division, which makes aerial lift equipment used on construction sites and for other purposes.

JLG, as part of an American coalition of aerial lift makers, complained that Chinese competitors were selling equipment in the United States at less than full value, a practice known as "dumping," and a violation of international trade rules. One Chinese company copied JLG's colors and opened North American offices in Chambersburg, Pennsylvania, about 30 minutes from JLG's headquarters in McConnellsburg.

"Unfortunately, our company and the entire American (aerial lift) industry can no longer compete with the unfairly priced Chinese imports," then-JLG President Frank Nerenhausen testified at a U.S. International Trade Commission hearing in October 2021.

China poured subsidies into aerial-lift companies, leading to overcapacity at the manufacturing plants and fueling the international dumping, according to the U.S. coalition.

China's manufacturers said the claims were false and hypocritical. The Amercians "were caught flat-footed ... and were unable to meet demand, creating opportunities for others in the market," they said in International Trade Commission testimony.

In response to the trade dispute, the U.S. government in 2022 set tariffs of up to nearly 200% on nearly all imports of the Chinese equipment. That intervention helped save an American industry, Nerenhausen, who is originally from Wisconsin, told the Journal Sentinel.

China isn't sitting by idly, but has its own challenges

Companies that have attempted to exit China for countries like Vietnam or Mexico haven’t always been successful, even when labor costs are low and there are few government restrictions. That's because manufacturers in low-cost countries, and even in the United States, often have to import parts and raw materials from China.

“One of the biggest challenges for U.S. companies is to find suppliers elsewhere,” said Siva Yam, president of the U.S.-China Chamber of Commerce.

However, China has its own struggles, some of which stem from its industries growing too much, too fast.

"Many Chinese manufacturers today are struggling, and the sector is shedding jobs. Conditions in China are growing less favorable to basic manufacturing,” Yam said.

In the early 2000s, China launched a “Going Out” strategy aimed at encouraging Chinese companies to invest overseas and engage in open markets. Many invested in businesses in which they had little knowledge, with poor results. Government subsidized industries struggled.

China's wages are increasing, its worker-benefit system is cumbersome, and its workforce is aging after decades of a one-child-per-family policy, according to Yam.

But will American companies continue exiting China for the Western Hemisphere? Based on its research, Kearney believes reshoring trends are sustainable.

"The groundwork for a North American manufacturing resurgence has been put in place," the firm said in a recent report.

“China’s not the answer forever. We just need to convince [U.S. companies] reshoring’s here to stay.”

—Megan Tzanoukakis, Sussex IM president and CEO

That doesn't mean China is sitting idly by as it loses more of the American market to reshored and nearshored goods. But nearly four of every 10 U.S. executives surveyed by Kearney said they plan to keep moving out of China for the United States or a nearby country; another one in four said they were considering leaving India, and one in seven might exit Vietnam. 

Companies have been constructing factories in the U.S. at a rapid clip, many of which will employ artificial intelligence and advanced automation to reduce the need for manual labor. In 2023, the spending increased 71% over 2022 and was up 178% from 2017, according to Census Bureau figures.

"One fact is beyond question. The U.S. market increasingly relies on goods made closer to home," Kearney said. 

To a great extent, companies like Sussex IM will determine whether reshoring is sustainable. The family-owned business, founded by a Hungarian immigrant in 1977, has taken a lighthearted approach in giving its robots names like Daffy Duck and Porky Pig. But it takes investment in advanced technologies and new markets, including medical devices and sports equipment, seriously.

U.S. companies realize "China's not the answer forever," said Tzanoukakis, the CEO. "We just need to convince them reshoring's here to stay."