A recent New York Times story about Google manufacturing, or perhaps I should say assembling, its new Nexus Q wireless media player in the United States has resulted in a rash of hopeful commentary about how manufacturing may be moving back to America from China and the rest of Asia and Europe.
To be sure there are some encouraging examples. Airbus has just announced plans for an aircraft assembly plant in Alabama. This follows other announcements by Caterpillar and GE of the return of some assembly and manufacturing operations to the United States from Asia. And ET Water Systems recently received a lot of attention when it announced it was moving its manufacturing operations from Dalian, China to Silicon Valley because it needed proximity to of manufacturing to the rest of its operations. The linkages within the company were deemed more valuable than the savings in labor achieved by producing in China. Of course, in this, as in all cases, the labor savings are becoming relatively less because of rising wages and inflation in Asia and especially in China. As former U.S. trade negotiator and international consultant Charles Blum says, "imagine what we could move back to America if we actually had a strategy and tried."
Nevertheless, Harvard Business School professor Willy Shih is correct to warn that recovering extensive manufacturing for the United States will be no simple task of just waiting for the macro-economic forces and the magic of the market to do their work. Shih noted in an e-mail exchange with me that the key is not assembly but components. He points out that E Ink, for example, "commercializes electrophoretic beads from the MIT Media Lab for the Kindle. But in order to have a complete product, they need low-temperature polysilicon sheets (available only in Asia from LCD manufacturers) and release films (they have to go to Japan for that. So even though they own the product concept, they can't build it in the US ... none of the capability in what I call the industrial commons is around anymore. They end up capturing a small part of the overall value, eventually PrimeView of Taiwan scooped them up (they then took on E Ink's name)."
Or, says Shih, "let's pick apart a Google tablet. Take the LCD display. The only ones who have that capability to produce it are Korea, Taiwan, Japan, China. So you would have to buy it there. All the ICs ... even if they were designed in the US, were fabbed (manufactured) in Taiwan or China. Some small parts may come from Japan or Korea, but most come from China. China has captured the electronics supply chain, something that is unprecedented in history."
Because the supply chain moved to Asia as the result of the strategic industrial policies carried out by Japan, the Asian Tigers, and now China, Shih believes it will be extremely difficult, if not impossible, to recapture much of it without some kind of a similar U.S. industrial policy involving close collaboration between the U.S. government and industry.
Perhaps the Nexus Q can serve as a kind of pilot project. Google seems to have found U.S. suppliers for most of the parts. While the $300 price is high, economies of scale stemming from mass production should bring that substantially down. Shih believes that if Google can be competitive with this product from a U.S. base, that should be a signal for the U.S. government to get very aggressive about persuading, cajoling, and enticing foreign component makers to move production to America as part of a strategy to recapture the supply chain.
Dare we imagine that things can again be Made in America? All eyes will be on Google.
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Clyde Prestowitz is the president of the Economic Strategy Institute and writes on the global economy for FP.