Rising demand for American-made parts is intensifying the need to solve the manufacturing skills gap

February 1, 2023

By Mark Shortt

Since the beginning of the pandemic, reshoring of U.S. manufacturing has been dominated by industries that make products deemed too essential to risk being derailed by supply chain disruptions.

According to the Reshoring Initiative® 2022 Q3 Data Report, such industries include medical equipment and supplies, driven by PPE and medical devices. They also include computers and electronic products, which rely on semiconductors and chips; and chemicals, driven largely by urgent domestic demand for pharmaceuticals, hydrogen fuel, and materials for EV batteries.

Together, these and other industries played a big role in bringing manufacturing jobs back to America in 2022. According to the Reshoring Initiative’s third quarter data, manufacturing jobs resulting from reshoring and FDI reached their highest level ever recorded—about 15 percent above the previous record attained in the first quarter of 2022.

But the industry most responsible for the upsurge in reshoring and foreign direct investment that occurred in 2022, according to the report, is electrical equipment (including appliances and components). It’s being spurred by explosive demand for U.S. production of EV batteries and charging stations.

If you took an inventory of domestically manufactured products that were reshored or made possible by foreign direct investment in 2022, you’d see more EV batteries than any other product. Through the first three quarters of 2022, the Reshoring Initiative counted 146 projects that involved reshoring or foreign direct investment in U.S. EV battery production, accounting for 105,000 jobs announced, the report said.

“The investment in batteries is booming, in the attempt to obtain needed supply and not be dependent on Asian, especially Chinese, imports,” said Harry Moser, founder and president of the Reshoring Initiative, in the report. “Electrical equipment’s share of jobs announced went from 3 percent in 2019 to 44 percent in 2022.”

The Inflation Reduction Act of 2022 is expected to continue to be a strong driver of reshoring and FDI, particularly for manufacturing of EVs and EV batteries, according to the report. Before the Inflation Reduction Act, EV products—especially batteries from China—were primarily imported. But tax credits of $11,500 per eligible vehicle are “about 30 percent of manufacturing cost, making North American sourcing the only viable solution for U.S. sales,” according to the report.

Although major automakers are currently making huge investments in domestic EV battery manufacturing facilities, it’s not yet clear what impact the transition to an EV manufacturing supply chain will have on U.S. manufacturing going forward. In a phone interview, Moser noted that EV batteries are “really expensive at the moment.” He also said that because EVs have fewer mechanical parts than traditional gas-powered cars, they will likely require less machining and other manufacturing processes needed for the engines and transmissions of traditional vehicles.

The increasing attention to environmental, social, and corporate governance (ESG) could make it easier for companies to decide to reshore their manufacturing operations, according to the Reshoring Initiative. It could even become a “driving force behind reshoring” as more companies come to understand that manufacturing in the U.S. helps them achieve their responsibilities to their customers, suppliers, employees, and communities, as well as their shareholders.

“The Business Roundtable’s August 2019 Statement on the Purpose of a Corporation expanded the definition of stakeholders from just shareholders to now include employees, suppliers, and community,” the Reshoring Initiative said in its report. “We anticipate companies will recognize that reshoring is the most effective and least expensive way to fulfill their commitments. Companies can strengthen the three new stakeholder constituencies while increasing the return to shareholders if they do the math.”

To “do the math” correctly, companies need to account for all relevant cost factors, including overhead and risks, when deciding where to source parts, assemblies, or products. That means estimating the total cost of ownership (TCO)—rather than price—of offshore production versus domestic manufacturing. The Reshoring Initiative offers a free online tool, the Total Cost of Ownership Estimator®, to help companies make such an estimate so that they can accurately evaluate sourcing options.

“Universal TCO usage, alone, would reshore about 1.5 million jobs,” according to the Reshoring Initiative’s report.

Industries that are expected to generate strong demand for U.S. contract manufacturing over the next several years include electric vehicles (EVs), semiconductor manufacturing equipment, power generation and renewable energy, data centers, industrial automation, defense, and medical. But if shortages of skilled labor continue to plague U.S. manufacturers, they could impede companies’ efforts to bring manufacturing back to America, Moser said.

“The biggest challenge will be bolstering our skilled workforce, which is not adequate to support a much higher rate of reshoring,” Moser said in the report. But recognizing the shortage is the first step toward solving it, and signs of progress are now apparent. “Awareness of the problem is growing, perceptions of manufacturing jobs are improving, more companies and governments are adding programs,” he added.

Design-2-Part caught up with Harry Moser recently to hear his insights on the current state of U.S. manufacturing, including why American made parts are in high demand, and what actions can help put the industry on the best path forward. A transcript of our conversation, edited for brevity and clarity, follows.

Following the Q&A are two articles that discuss approaches to solving the manufacturing skills gap, “Training: Responding to the Skills Gap,” by Katie Rapp, writer/editor for NIST’s Manufacturing Extension Partnership; and “5 Things We Learned in Germany,” by Matt Fieldman, executive director of America Works.

Design-2-Part: Why are American made parts and components in such high demand today? What’s happening, and what has changed over the last few years that is fueling this greater demand for domestically manufactured parts, products, and assemblies?

Harry Moser: Of course, if you look at the overall trend, they [reshored manufacturing jobs] have risen rather continuously from 2010, when we were founded. That year there were 6,000 jobs announced. In 2022, finally, it’s going to be somewhere between 350,000 and 400,000.

But for the first, say, 10 to 12 years, from 2010 to 2019, it was largely due to companies recognizing all the small costs and risks associated with offshoring. My best example of it is this: A professor at the Business School at Ohio State University, John Gray, found four companies that had offshored and then reshored. He went to them and asked why they offshored. They answered, ‘The wages were so much lower, and I could buy the parts for so much less, that it made sense, and I couldn’t afford not to do it.’

And I said to them, ‘Why did you turn around in two or three years and reshore?’ The answer: The delivery, and the communications, and the travel, and too much inventory, and quality issues, and paying for freight and duty. It just wasn’t worth it.

I think that cumulative experience that the grass looks greener, but finally wasn’t, in many cases, drove those first 10 years or so. And then, over some period of time, we had Fukushima, we had the floods in Thailand, we had COVID, Suez Canal, and now Russia. And companies looked at all that and said, ‘Wow, our products are not a week late—they’re months late.’

So they’re saying to themselves, it’s one thing to be a little late on getting something, but if I’m not going to get it at all, and we have hundreds of parts, different components coming in from China, we’re going to be out of business.’ And companies are trying to say that it makes more sense for them to pay a little more for the components, so that you have the components to make the end product.

I’ve got a really nice chart that somebody presented at the World Economic Forum. It said until the last couple of years, companies used to think about saving pennies on the components that they were buying, and now they’re worried about being able to ship the end product so they can make thousands of dollars of margin on selling the product. So [going from] knowing about the pennies to protecting the dollars is causing companies to make decisions that are consistent with reshoring.

D2P:The Reshoring Initiative’s Q3 2022 Data Report said that the ESG (environmental, social, and corporate governance) trend should be a driving force behind reshoring. What effect do you see the increasing pursuit and adoption of ESG principles having on American manufacturers’ production and sourcing decisions?

HM: It hasn’t had the effect that it should have or that I’d like to see it have. The companies are measuring their pollution and, in theory, they’re measuring it in their supply chains. Everybody agrees most of the pollution is in the supply chain, and most of them agree they don’t know what’s happening at the second and third tiers, especially in places like China. Anybody who analyzes it agrees that producing anything in China and shipping it here is more polluting than making it here.

And I claim that for most companies, if they want to do something about ESG, the single best thing they could do is bring work back here and put Americans to work, strengthen the country, reduce pollution, improve income equality. Whatever you want, you get by bringing millions of manufacturing jobs back.

We’ve been overwhelmed by interest from Wall Street. At least once a week, I get an email from a significant Wall Street company, saying, ‘Harry, we saw news about your data. How do we get your data? We want to analyze it to help guide our investment decisions or to make recommendations to our clients.’ So they clearly know that it’s an important macroeconomic trend, and they’re trying to figure out how to make money by riding the wave.

If you compare that to, maybe 30 or 40 years ago, people with MBAs were going around telling companies to cut back to their core competence. ‘You should do R&D, marketing, and finance, but get out of manufacturing—that’s a commodity. Let the Chinese do it for you. Don’t even own the factory.’ So, you cut your assets in half, and you actually increase your profits because you’re going to buy the parts for less than it was costing you to make them. So, your profits go up, your assets go down, your return on assets doubles. Of course, you should get out of manufacturing.’ And now, they’re starting to say, ‘Huh, that’s not working so well.’

D2P: The report also mentioned how reshoring of U.S. manufacturing has been dominated by industries that make products deemed too essential to risk being derailed by supply chain disruptions. The industry that was identified as most responsible for this upsurge in reshoring and FDI in 2022 is electrical equipment, which is being spurred by big demand for domestic production of EV batteries and charging stations. What impact do you believe that this transition to an EV manufacturing supply chain—including parts, batteries, and charging systems, and in some cases, even new production cells and facilities—will have on U.S. manufacturing?

HM: The batteries are really expensive at the moment, and it seems like equivalent cars with EV battteries cost more than cars with internal combustion engines. But the manufacturing, the machining and such—there’s less of that on the EVs than there is on the internal combustion cars. With engines, and transmissions, there are lots and lots of mechanical parts in them.

I haven’t done the analysis, but I’m pretty sure that the amount of machining per car is going to come down, relative to what it used to be. On the other hand, there’s certainly some machining in making electric motors, but not as much as in an internal combustion engine.

But there’s huge investments in these EV battery plants. We’ve had a huge number of announcements of these plants, and I read one comment that said, even with all of that, only about a third of what’s going to be needed by 2030 has been announced so far.

So I think that the announcements about the batteries are going to be strong for at least the next two or three years. And it’s further complicated by the fact that there are alternative technologies coming out. Internal combustion engines are 100 years old or more, so they’re pretty stable, pretty mature. Whereas the battery technology is really five, 10 years old.

D2P: Along with EVs, there’s been a similar drive to push the manufacturing of semiconductors in the U.S., with chip factories. Semiconductors are key components of vehicles, including EVs. How dependent do you think the domestic EV manufacturing industry can be on U.S. production of semiconductor chips, which have proven to be in short supply in many cases?

HM: I think most of the chips that EVs use come from offshore. We make 13 percent of all the chips, and therefore the odds are that the majority of what they’re buying is coming from offshore. And so I’m quite sure the U.S. is not self-sufficient.

On the other hand, my fear is that everybody is building chip foundries. In the U.S., we’ve announced, I don’t know, 5 or 10 of them—some huge number. My fear is that there will be too much chip capacity in the world, including in the U.S. And it’s generally agreed that the cost of making chips in the U.S. is about the highest in the world—maybe 20 percent higher than China would be, or Taiwan, because of wages, regulations, and what have you.

Five years from now, when the chip foundries are all built, my fear is that there will not be enough demand for the chips, the prices will fall, and the U.S., if our overall mix of production of manufacturing stays the same, most of the electronic devices—infotainment systems, cell phones, computers, electronic medical devices—will still be assembled in China and Taiwan. So we’re going to be dependent on China to buy our high-priced, or overpriced chips, to keep our foundries busy. But they’re building their own chip foundries and they want to keep their foundries busy. They’re not going to buy our chips, especially if we’re fussing with them.

So, therefore, we’ve recommended to the government that yes, it’s good to build the chip foundries, but if you’re going to do that, have all that capacity, then they need to make overall U.S. manufacturing price competitive so that more assembly of electronic products takes place here, so that there will be a market for the chips that they’ve just subsidized.

D2P: That’s a good point about the assembly of electronic products because we need more of it. How would you recommend bringing that about?

HM: The exact same way we recommend bringing mechanical products back. The reason the work went abroad is absolutely clear. The wages are lower over there, the prices are lower. Specifically, the U.S. manufacturing cost, on average, is 40 percent higher than China’s. And similarly higher versus Vietnam, Cambodia, and India. So, the U.S. is just too expensive, and not just against those countries. We have trade deficits with nine of our top 10 trading partners—Italy, France, Germany, everybody except the U.K.

The U.S. is not price competitive, and if you want us to bring the work back, companies overwhelmingly make their purchase decision based on price. We’ve surveyed them, and that’s what they say. So, if you want them to bring the work back, you’ve got to get our price competitive with offshore.

The obvious ways to do it: first, have a skilled workforce, like Germany, where half the kids coming out of high school go into apprentice programs. Get really exclusively good training, like in Germany, Switzerland, Austria. That’s the first thing because you need that to increase the production and to be competitive.

The second thing is to get the dollar down by 25-30 percent. Almost all economists agree that the dollar is overvalued by 25-30 percent because we’re the reserve currency, and that forces up the value of the dollar and makes us uncompetitive. You couldn’t do it all tomorrow, but [if you] reduce it by 3, 4, 5 percent per year, for the next 10 years, while you develop the workforce, and we’d have millions and millions of jobs..

D2P: You also suggested retention of immediate expensing of capital investments. Can you tell us a little bit more about that?

HM: Sure. In the 2017 tax bill, one of the things that was put in, and was universally supported by industry, is that when you make a capital investment, buy a new machine tool, you’re able to write it off 100 percent in the current year, instead of over the depreciable life of the product. So it makes it very attractive, especially for small companies, where they say, ’Hey, I’m making too much profit this year, I’m paying too much in taxes, what should I do?’ Buy a machine. You write off $100,000, $200,000, and all of a sudden, taxes went down a lot.

Emotionally, financially, and economically, it motivates companies to act. But that 100 percent expensing in the year of purchase ended at the close of 2022.

It [immediate expensing of capital investments] doesn’t cost the government much because the company still gets the same depreciation. They just get it in year one, instead of spreading it out over seven years. It’s not giving away money. It’s like the government is giving the company an interest-free loan for a couple of years. It’s one of the simplest things to do to keep people motivated, and I advocate it to the government every time I talk to them.

So that’s very important, and it seems more targeted than, say, cutting the corporate income tax. Because if you cut the corporate income tax a couple of points, that helps the entertainment companies, the restaurants, everything. Whereas I want to help manufacturing, and manufacturing is where most of the capital investment is.

Training: Responding to the Skills Gap

By Katie Rapp

There aren’t enough workers to meet U.S. manufacturers’ needs. A 2021 survey by the National Association of Manufacturers found that 80 percent of companies say their top challenge is the inability to attract and retain a quality workforce. The situation will worsen as baby boomers continue to retire. Adding to the challenge, the “great resignation” has resulted in people looking for more flexible and rewarding work. According to Deloitte, there could be 2.1 million unfilled manufacturing jobs by 2030.

A new infographic, Training: Responding to the Skills Gap, describes both common workforce challenges for small and medium-sized manufacturers and possible solutions.

Training is the solution

Why invest in current employees instead of looking to hire new people? It’s a sound business decision that costs less and results in higher productivity because new employees take an average of five to nine months to reach full productivity. For many manufacturers, retraining and upskilling existing employees creates an attractive work environment and increases retention.
More and more, manufacturers are investing in training. A recent Manufacturing Institute study found that 75% of respondents said upskilling workers helped to improve productivity, promotion opportunities and morale.

Creating effective training programs

What types of training will engage your employees, meeting both your needs for enhanced skills and their needs so that they stay with your firm? Here are some effective training strategies that have worked for small and medium-sized manufacturers:

Transfer knowledge – mentorships and apprenticeships. More than 90 percent of employees who have gone through apprenticeship programs stay on the job where they received the training. Mentoring relationships are valuable on both personal and professional levels because they create a sense of connection that is important to job satisfaction – leading to higher retention.

Leverage technology – augmented and virtual reality (AR and VR). Using AR and VR for training has many benefits including being a safe learning environment and the ability to implement it remotely. It’s more cost effective than real-life simulations and retention rates are much higher for VR than with traditional training. What’s more, the gamification aspects of training appeal to Gen Zers and millennials!

Apply lean manufacturing principles. Applying the principles of lean manufacturing to training can lead to better results. Design training with a specific intent for what workers need to excel – this increases value and reduces waste. Flexible, active training sessions, and lots of Q&A also align with lean principles. Mapping the value stream of your training program, creating flow, and aiming for continuous improvement are additional ways to effectively apply lean principles to training programs for great results.

The MEP National Network can help

The MEP National Network™ is helping small and medium-sized manufacturers develop the workforce solutions they need. MEP Centers across the U.S. and in Puerto Rico, partnering with local education and economic development partners, offer a variety of training suited to each company’s unique needs, including:

* Structured onboarding.
* Training on specific skills such as reading blueprints, geometric dimensioning and tolerancing.
* General skills such as team building and problem-solving.
* Lean and process improvement methodologies.
* Apprenticeship and mentoring.
* Supervisory skills.
* Training within industry (TWI).

Here are examples featured in the infographic of how six MEP Centers worked with manufacturing clients to solve their unique workforce challenges:

Industry 4.0 and TWI: Illinois Manufacturing Excellence Center (the Illinois MEP Center) helped Bourn & Koch, Inc., a 78-employee facility that provides precision automated machine tool solutions for the global manufacturing community, incorporate Industry 4.0 technologies and TWI methodologies to easily transfer knowledge, upskill current employees, and train new employees.

Cross-training and upskilling: New Jersey MEP helped Groezinger Provisions, Inc., a family- and women-owned producer of pâtés and specialty meats, develop a customized training solution to cross-train and upskill employees to disseminate specialized knowledge, revisit food safety rules and regulations for compliance, and retain and increase sales.

Workflow training: Enterprise Minnesota (the Minnesota MEP Center) helped Minnesota Twist Drill, a 115-employee drill bit manufacturer, implement inventory reduction training and workflow training to reduce inventory and work in progress, resulting in major cost savings and output.

Certifications: Purdue MEP (the Indiana MEP Center) helped MSP Manufacturing, a leading manufacturer of precision-machined products for the aviation, aerospace and defense industries, comply with AS9100, ISO 9001, and National Aerospace and Defense Contractors Accreditation Program requirements, get on track to complete Cybersecurity Maturity Model Certification requirements, and upskill employees in computer numerical control machining.

Credentials: Ohio MEP helped Rhinestahl Advanced Manufacturing, a company headquartered in Mason, Ohio, establish training that included in-person interactive workshops combining textbook content, lecture and collaborative discussion on material science, material processing and machinability in five axes, resulting in National Institute for Metalworking Skills materials and machining credentials.

Partner with local colleges: Impact Washington (the Washington MEP Center) helped BRIX Marine, a 50-employee manufacturer of custom-designed aluminum boats, meet its need for qualified marine aluminum welders by enlisting a local college to develop a curriculum and provide facilities to augment on-the-job training. The program standardized work processes, trained existing employees and new hires, and helped the company build capacity.

Download the infographic, Training: Responding to the Skills Gap, and learn more about how MEP Centers can help your company respond to the skills gap and train the employees you need to succeed:


Katie Rapp is a writer/editor for NIST’s Manufacturing Extension Partnership where she helps NIST MEP staff use plain language so their readers can understand what they write the first time they read it. Before that, she was a librarian at the NIST Research Library where she learned and wrote about many cool NIST history stories.

This article appeared on the NIST Manufacturing Innovation Blog on January 12, 2023.



5 Things We Learned in Germany

By Matt Fieldman

I’m sure you’ve heard the buzz around the German apprenticeship system—but does it really live up to the hype?

That’s what a recent mission of 16 workforce professionals from around the United States set out to learn. Supported by the Transatlantic Program of the Federal Republic of Germany, funded by the European Recovery Program of the Federal Ministry for Economic Affairs and Climate Action, and coordinated by America Works in partnership with the American Council on Germany, the October trip was truly a team effort. Our group included eight professionals from the MEP National NetworkTM and eight from other partner organizations—representing 11 states and a variety of educational, manufacturing and government backgrounds.

One of our goals was to educate our peers across the U.S. about what we learned in Germany. To that end, we recently held a webinar sharing our experience with more than 100 attendees from the MEPNN and beyond. Here are five valuable lessons that we took away from the trip.

Alignment of public and private interests

The alignment of Germany’s four major stakeholders—the federal government, 16 German states, private partners (employers, vocational schools and labor unions), and chambers of commerce—is admirable. Each has a critical role to play, and each has clear benefits from participating in the apprenticeship system. Here are some details about Germany’s apprenticeship system:

* One-third of apprentices’ instruction takes place at vocational schools; two-thirds is held at the employer or training site.

* Salaries for apprentices are generally set at one-third of the average starting salary for that position, with companies allowed to offer benefits above that, but only within reason.

* The private sector contributes roughly 75 percent of the costs, while the public sector contributes 25 percent.

* A national apprenticeship radar website, updated by employers quarterly, allows young people and their parents to explore work-based learning opportunities nearby.

This national standardization creates a uniform program that every employer understands and can use.

Lesson #1

The U.S. needs more alignment up and down the industrial training ladder, with nationally recognized certifications issued by an unbiased third party.

Paving paths to opportunity and success

The value to the German apprentice is clear. The four-pronged value proposition is relatively simple:

* Earn while you learn.
* Develop your skills.
* Have a guaranteed job when you finish your apprenticeship.
* Have a clear path to career advancement through additional schooling or certifications.

Apprenticeships include regular pay increases, a wide variety of technical and theoretical training, and nationally recognized skills standards. There’s a clear investment by the company in the apprentice’s future, which leads to long-term retention. And while the apprentice is guaranteed a position at their company for one full year after completing the apprenticeship, they are not required to stay with that company.

Lesson #2

The U.S. as a society needs to have more options for practical, hands-on learning at the high school level. The apprentices we spoke to (mostly 16-18 years old) loved the experience of making real things, interacting with advanced manufacturing technologies, and engaging in challenging and varied work every day. They all had tremendous pride in their work and would recommend that same path to their friends.

Investing in people

German employers see value in investing in their workers, regardless of how long that worker stays at the company. Because the employer has input in defining and developing the training content with the educational partners, the apprentice is essentially guaranteed to stay with the company upon graduation. We heard different numbers from employers, but essentially, they were investing 30,000-60,000 euros (approximately $31,500-$63,000) in salary and training for each apprentice during the course of their three years.

Tellingly, not a single company we met with complained about the price of training apprentices—if anything, they bemoaned the fact that they couldn’t recruit more young people to their companies. This clear return on investment for the employer in the apprenticeship system leads to its long-term sustainability and explains its longevity.

Lesson #3

Aligning all these partners and ensuring consensus between them is hard work. However, this work is absolutely crucial to the success of the system. The reduced turnover, pipeline of skilled employees, and lower recruiting costs that employers enjoy pay for the investment many times over.

Early education

Schooling decisions in Germany are not happenstance, but are a thoughtful collaboration of parents, administrators and teachers—and are made at multiple points in the child’s educational journey. Internships start as early as eighth grade and are geared toward helping the student pick a career path.

Lesson #4

While many of us would recoil at the thought of making significant decisions about our child’s future occupation in fourth grade, this tailoring of middle school and high school education to the individual student’s skills, abilities and interests is a fascinating idea. The summer job flipping burgers or lifeguarding at the pool is not a thing in Germany; rather, the eighth and ninth grade internships are serious jobs meant to focus the student on selecting their career path.

Pedigreed apprenticeships

German apprenticeships have been around for hundreds of years, with the central legal codification coming in 1969.

Lesson #5

The U.S. should start today. German apprenticeships—and their overall vocational education training system—are simply part of German culture, with roughly 60 percent of professionals having this past training. It’s just what you do as part of your schooling. The seamless integration of the four stakeholders (the German federal government, states, private partners and chambers of commerce) is helping drive Germany forward as a manufacturing powerhouse.

If we want the U.S. to get to that level of sophistication, we have to start working on it—today.

Matthew Fieldman is currently executive director of America Works, a nationwide initiative to coordinate the American manufacturing industry’s training efforts, generating a more capable, skilled, and diverse workforce. Based at MAGNET: The Manufacturing Advocacy and Growth Network, Matt works across the nation’s Manufacturing Extension Partnership (MEP) system to increase collaboration, efficiency, and impact of local and regional workforce development efforts.

This article originally appeared on the NIST Manufacturing Innovation Blog on December 14, 2022.



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