Why the U.S. reshoring is a long shot

Kim Byung-yeon

The author is a chair professor and head of the Institute of Future Strategy at Seoul National University.

Why is the U.S. government so set on reshoring? Why is the United States paying attention to the manufacturing sector after departing with it long ago? That’s because the repeated disruptions in global supply chains prompted the need to raise resilience against external factors. For policymakers, there is a bigger reason. They believe that the winner of the hegemony war with China will be determined by who is better at advanced manufacturing. Artificial intelligence, quantum dynamics and semiconductors do not just define superiority in the economy but also in security. Bioengineering and secondary batteries are no exception. The U.S. desperately wants to overwhelm China in the competition for advanced technology to cement its global dominance.

High-skilled manufacturing is necessary to bolster the middle class, too. Under the banner of “Build Back Better,” U.S. President Joe Biden’s administration aims to restore the American middle class. Under the globalization framework, the U.S. took the lead in the financial, cutting-edge technology and platform sectors to offer the highest salaries in the field. But traditional manufacturing has lagged far behind, keeping workers’ pay stagnated. The economic polarization has deepened the political divide.

The Gini coefficient that measures income inequality for Americans is at 0.43, the highest among the Group of Seven economies. The top one percent represents 19 percent of American wealth, the highest since World War II. The reshoring of advanced manufacturers who can provide at least the median income is expected to help ease the serious wealth disparity in the U.S.

But whether the U.S. reshoring campaign will last or survive after the contest with China is finished is doubtful. For America to become a powerhouse in advanced manufacturing, it must transform its model of capitalism into that of Korea, Germany or Japan. According to “Varieties of Capitalism,” a 2001 book on comparative capitalism, advanced capitalism — divided into the American type, the Northern European type and the continental European type — has systemic consistency. For instance, their labor, education, finance, culture and values are not only aligned to their system, but their efficiency also corresponds to the alignment. The CHIPS and Science Act provides $52 billion in spending on U.S. chip production and research and development over the next five years. But subsidy alone cannot build a chip powerhouse. The U.S. must go beyond the legislation and budget spending to shift its economic paradigm and ecosystem.

Take workforce, for instance. How many highly educated Americans will be willing to settle for a manufacturing job? Can the American education system’s prizing creativity be compatible with the industrial policy of manufacturing powerhouses? Only three — Korea, Japan and Germany — have a manufacturing sector that contributes more than 18 percent of their GDP among countries with per capita income of more than $30,000 and a population of more than 10 million. The three countries’ respective ratio is 25 percent, 20 percent, and 19 percent. But the share in the U.S. is only 10 percent.

Job tenure in Japan and Germany doubles that of Americans. Korea’s is also longer than America’s when excluding contract workers of small and medium-sized companies. Advanced manufacturing requires high skills, which are built according to the years of work. As a fully automated factory is still a far-fetched dream, the tacit knowledge of highly skilled workers determines the yield in a chip assembly line. Without experienced workers, the U.S. cannot dream of becoming a powerhouse in advanced manufacturing.

The all-purpose and creativity-focused American education is not fit for manufacturing jobs. Young people who are trained to build creativity instead of a certain skill would wish to develop something new instead of settling for a repetitive manufacturing job. Moreover, U.S. education is focused on breeding versatile people who can adapt to any type of job in the U.S., where job mobility is higher.

Germans, on the other hand, can choose vocational training after elementary schooling. Japan offers an apprenticeship-style on-the-job training (OJT) program. American companies cannot strengthen the OJT program, as they cannot expect workers to stay long.

U.S. President Joe Biden holds up a silicon wafer as he participates virtually in the CEO Summit on Semiconductor and Supply Chain Resilience in the Roosevelt Room of the White House in Washington on April 12, 2021. [AP/YONHAP]

Korea must keep its position as a manufacturing powerhouse in advanced technologies because its strategic value rests on its competitiveness in the tumultuous period. According to the Economic and Security Index of the Seoul National University Institute for Future Strategy, Korea is No. 4 in export capabilities in 12 new industries. The U.S. won’t dare to isolate Korea as it did with the Acheson Line in 1950. China also cannot ignore South Korea regardless of its traditional ties with North Korea.

But the danger lies within. South Korea’s advanced manufacturing is running short on the workforce as a result of demographic thinning and science elites only turning to medical schools and shunning engineering and industrial fields. Will Korea’s manufacturing status remain intact after the U.S. is done with reshoring and realignment in the advanced manufacturing order? How should our university education change, and what are the strategies? The questions demand an immediate attention.
Translation by the Korea JoongAng Daily staff.