Following the coronavirus pandemic, the world slowly and then suddenly began to de-globalize, and companies began to focus on shifting away from just-in-time supply chains. This is certainly the case in the electronics industry, where semiconductor manufacturers began a massive new wave of investment in U.S. semiconductor fabrication capacity in concert with the passage of the CHIPS and Science Act. Although semiconductor fabrication capacity has expanded globally and inventories have rebounded with electronics distributors, PCB manufacturing capacity remains in Southeast Asia, with the majority of capacity located in China.

In this conversation with Michele Nash-Hoff, the topic of U.S. electronics manufacturing is discussed and what needs to be done to accelerate reshoring of PCB fabrication capacity back to the United States. This is both a national security issue and an economic issue, particularly because so many defense electronics and mil-aero circuit boards for the U.S. defense industry are produced in China. Michele highlights the fact that manufacturers are not fully considering the tangible and intangible costs of manufacturing in China, and American manufacturers can make domestic production of PCBs economically sensible once all the costs and benefits are fully understood.

Watch the clip below with Michele Nash-Hoff or watch the full discussion here.

The Takeaway

The onshoring trend is projected to continue for some time, leading to regionalized supply chains and manufacturing capacity that are strategically located close to customers and suppliers of raw inputs. There are multiple challenges involved in restoring U.S. manufacturing, but the three most important challenges that can be identified are:

• Workforce development
• Procurement of capital equipment
• PCB materials supply chain growth

Protectionist policies are helpful for spurring initial rounds of investment, but they cannot be relied on long-term. Hardware, software, and human capital are needed to bridge the gap and encourage further reshoring of American electronics manufacturing capacity.

Transcript

Zach: Before getting deeper into the discussion, one thing that people often assume when we talk about reshoring U.S. manufacturing is that we should be making every single circuit board for a toaster oven here in the U.S. However, others—especially those in advocacy—argue that the focus should be on producing advanced products critical to national security and high-value components, like the circuit board for an iPhone. It might make sense to manufacture some of these key components domestically. Another perspective is that instead of relocating all manufacturing capacity to the U.S., we should spread capacity around. Otherwise, we might face the opposite problem of what happened during COVID-19—back then, we couldn’t get chips in fast enough; if all capacity were centralized in the U.S., we might struggle to get chips or boards out to customers efficiently. This raises the question of what the ideal manufacturing mix in the U.S. should look like.

Michele: Manufacturing worldwide is likely to become more regionalized, where regional manufacturing supports its local markets. This shift is essential because manufacturing jobs have historically created the middle class—losing those jobs leads to the decline of the middle class. While the U.S. once had a lead in high-tech manufacturing, China has now caught up. That means we can't rely solely on producing high-tech products domestically. Another issue is that global supply chains are inefficient, moving products around the world by ship or air. This model does not align with the growing consumer demand for customized products, which is difficult to achieve with mass production overseas. When manufacturers import standardized parts in bulk, flexibility is lost.

A presentation I’ve done, called The Future of Manufacturing, highlights how many companies moved production to China for lower labor costs. However, some of them did so unnecessarily. In many cases, labor costs made up only 20% to 30% of a product's total cost. If a product has less than 30% labor content, companies might not actually save money by manufacturing in China, especially when factoring in costs like increased inventory for safety stock, quality control issues, communication barriers, and long lead times. The total cost of ownership concept considers all these factors, allowing companies to quantify whether offshoring truly saves money or if domestic production could be just as cost-effective.

Additionally, automation has significantly reduced the need for manual labor in many industries. Processes that were once labor-intensive are now automated with robotics, cobots, and other advanced technologies. This shift has made U.S. manufacturing more cost-effective and efficient than before. The biggest change in the industry is how technology is reshaping manufacturing operations, making production faster and more affordable.

Zach: One major challenge companies face when considering reshoring is workforce development. Suppose a company wants to move 50% of its manufacturing from China to the U.S. to shorten its supply chain and be closer to customers. One of the biggest hurdles is the lack of a trained workforce. Organizations like IPC and industry experts frequently discuss this issue. Another problem, as highlighted by Sean Canaday in a recent podcast, is that the U.S. doesn’t manufacture much of the production equipment itself. Many manufacturers must go overseas to purchase the machinery they need.

Michele: This is true—over time, the U.S. has lost much of its machine tool industry. However, the reverse is also happening: because some production machines are extremely expensive to ship, manufacturers have started setting up production plants in the U.S. This trend is evident in the automotive industry, where companies like Nissan, Toyota, and BMW have established U.S. plants because shipping cars overseas is costly.

I recently wrote an article about workforce development and innovative solutions to address the skills gap. By 2030, the U.S. could face a shortage of over a million qualified manufacturing workers. Some people worry that automation, robotics, and artificial intelligence (AI) will eliminate jobs. While automation is replacing certain roles—like self-checkout kiosks replacing cashiers—manufacturing still requires skilled workers to operate and program machines. These jobs won’t be replaced by AI. AI can improve efficiency by optimizing processes and writing faster programs, but it won't replace the need for hands-on workers in manufacturing.

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