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We are to blame for the US manufacturing decline

We are to blame for the US manufacturing decline
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For more than three decades, the United States government has prioritized globalization while deprioritizing the strength and resiliency of its industrial base. American electronics manufacturing is a case in point and has, in many ways, been hollowed out by our collective inaction and short-sighted decision making.

There wasn't a single, seminal moment that shrunk American electronics manufacturing. It was the slow, steady march of decisions that devalued the industry and fostered opportunities elsewhere, particularly in Asia. 

Much of the decline was a natural response to the incentives of the time. Through the 1990s, the United States led a fast growing, fiercely competitive global electronics marketplace. U.S. companies distinguished themselves as innovators of technology and supply chains. Pressured by new international competition and backed by internationally applicable standards, U.S. companies optimized and internationalized their supply chains to bring manufacturing costs down and better reach customers. The Wall Street Journal highlighted the new global realities in a 2003 article on printed circuit board (PCB) manufacturer Viasystems, which tried to adapt to the emerging marketplace by shuttering nearly all of their North American and European facilities and moving to China, a country the Journal called Viasystems' “salvation.”

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The decision by Viasystems was ultimately shortsighted. The company eventually re-established a U.S. foothold — through acquisition and at great cost. But the decision to offshore seemingly made sense at the time, particularly given the posture of the U.S. government, which promoted the promise of trade with China and other countries across Asia. In hindsight, the U.S. Government miscalculated geopolitical trends and, in the process, neglected efforts to cultivate resilient and secure domestic supply chains. Lured by the cheap labor and government support, the U.S. got lazy and distracted.

The Viasystems case underscores why shaping a domestic policy is so important for manufacturing. Countries have an enormous ability to shape the conditions that foster or buffet the industry, from taxes and regulation to trade agreements, licensing, infrastructure and beyond. Particularly in an industry like electronics manufacturing, these small differences make a meaningful difference, and can motivate companies either to build up their domestic capabilities or leave for fairer shores. 

Rather than focus on building a coherent, effective policy concerning trade and industrial resiliency in the face of global changes, manufacturing became a campaign issue where Republicans and Democrats sparred over moment-in-time issues. What was missing was any semblance of strategy. Where we could have built tax and regulatory systems that encouraged reliable supply chains and trade with our neighbors or used the North American Free Trade Agreement as a vehicle to think boldly about the supply chains of tomorrow in electronics, we did neither. 

All around us, the world was changing. Demand for printed circuit board assemblies – the systems within the electronics that power our world – were skyrocketing in the United States and around the world as personal computers and smartphones became ubiquitous. But because of decreasing costs to produce goods abroad and America's deprioritizing of manufacturing, the domestic market failed to grow with increasing demand.

Today, there are fewer than 200 U.S. PCB manufacturers, and the $2.7 billion U.S. PCB market is now a third of where its value was 20 years ago. In comparison, China has enjoyed a tenfold increase to $33 billion. Though the costs of printed circuit boards have dropped dramatically over the years, the overall market is 50 percent larger today than in 2000. 

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Now, decades later, American policymakers face a new reality where industry, national security, and economic competitiveness are unnecessarily damaged. America finds itself looking up from a ditch, shovel in hand. And in the interim, China has built up its industrial and manufacturing capacity, moving beyond a destination for cheap labor to a production behemoth with companies – supported by government funding and backing – able to compete on the world stage.

While the United States and Europe have legitimate issues with China's trade and business practices, it's important to concede that China saw electronics manufacturing as a strategic investment while the U.S. accepted its loss as a natural consequence of comparative advantage. China invested the time, resources, and energy required to develop a comprehensive national plan to capitalize on the future of electronics manufacturing. The United States didn’t.

China isn't alone in prioritizing and effectively thinking long-term about manufacturing. Many of its neighbors across Asia have detailed, multi-year plans to stimulate investment, while the United States flails without a strategy. India has been pushing to usurp China's manufacturing dominance and is looking to attract foreign companies now that it has lowered corporate tax rates from 25 percent to 17 percent – the lowest in the region.

The pandemic was an enormous shock to global supply chains, upending accepted wisdom about best practices and risk calculation. It brought to light the extent to which electronics manufacturing had been offshored and visibility into the global supply chain had diminished. U.S. policymakers have been left without levers to pull. Injecting trillions of stimulus dollars into the economy fixes the symptoms not the underlying issues that harm the manufacturing base. It's more sugar.

This summer, both houses of Congress passed annual defense authorization bills that placed new purchasing requirements for PCBs to re-establish a resilient, secure supply for the Department of Defense. This commonsense measure is a modest but important first step in revitalizing U.S. electronics manufacturing. A number of leading manufacturers have said that, if enacted, the provisions would further incentivize investment in existing and new U.S. facilities.

But this change in defense-related procurement won't be enough to strengthen American manufacturing. No one in the electronics industry expects to achieve supply chain resiliency by merely focusing on job creation and neglecting a slew of issues that face electronics manufacturers, such as regional supply chains, workforce and capital expenditures. 

A country's industrial policies and clear strategic priorities matter. We need to think more deeply about how we bolster American manufacturing long-term. Policymakers must make this more than stimulus checks for job creation by providing the support required to help American electronics manufacturers to compete on the global stage they once dominated. 

John Mitchell is president and CEO of IPC, a global trade association representing the electronics manufacturing industry.