The Myth of the U.S. “Insourcing Boom”

The Myth of the U.S. “Insourcing Boom”

Former GE plant in Cicero, Illinois, closed in 1990 (Martin Gonzalez/Flickr)

“Over half of big manufacturers say they’re thinking of insourcing jobs from abroad,” crowed President Barack Obama in this year’s State of the Union address. Riding the wave of populist anti-offshoring sentiment that served him so well in the 2012 election, the president expressed nothing but optimism about the revival of U.S. manufacturing. But Obama’s rhetoric about “insourcing” is dangerously out of touch. The trend he describes is flimsy at best and will do little to stop the ongoing hemorrhaging of U.S. factory jobs.

Since 1979, the United States has lost half of its manufacturing base. The enactment of NAFTA and other “free trade” deals has contributed heavily to the erosion of U.S. industry over the past twenty years, including the loss of some 5.7 million manufacturing jobs from 1998 to 2012. Since 2000, fully 32 percent of U.S. factory jobs have disappeared, with a large percentage headed to low-wage nations overseas. As the Wall Street Journal’s David Wessel reported in 2011:

U.S. multinational corporations, the big brand-name companies that employ a fifth of all American workers, have been hiring abroad while cutting back at home, sharpening the debate over globalization’s effect on the U.S. economy. . . . The companies cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million, new data from the U.S. Commerce Department show.

Over the last couple of years, a tiny number of jobs has trickled back to the United States, and Obama has hailed every such development. In February 2013, he ventured to Milwaukee to highlight Master Lock bringing back about one hundred jobs from Mexico and China. But as David Firestone pointed out in the New York Times: “It’s great that the lock factory is now running at full capacity with a workforce of 412, but Mr. Obama omitted a key fact: 15 years ago the Milwaukee factory employed 1,154 workers.”

Obama’s rhetoric—backed up by precious few examples—has nonetheless spurred much media chatter about a manufacturing renaissance. The Atlantic’s December 2012 cover exemplified this brand of reportage with its headline “Comeback: Why the Future of Industry is in America.” The magazine’s evidence of this crucial development lay principally in the revival of General Electric’s Appliance Park facility in Louisville, Kentucky. Once a manufacturing hub—the company’s own “appliance city,” employing 23,000 at its peak in 1973—the facility was virtually shuttered by 2011. But over the course of the following year, the company restored 1,700 positions at Appliance Park, nearly doubling the facility’s workforce. For the Atlantic, this amounted to an “insourcing boom.” The story makes little of the fact that the new employees work for drastically reduced wages—at $13.50 an hour, the starting wage is down almost $8 from years prior—and cites precious few other examples of insourcing success stories.

Meanwhile, the Atlantic’s coverage of the “manufacturing renaissance” failed to mention that GE was shifting its 115-year-old X-ray unit’s headquarters from Waukesha, Wisconsin to Beijing—a story far more indicative of recent trends. While the engineers employed in Waukesha were able to keep their jobs, several top executives in GE’s Healthcare unit were transferred to Beijing, suggesting that the company is shifting development and production of its high-value medical equipment to China.

Caterpillar is another firm celebrated for bringing jobs back home. But, taking its cues from the auto industry, Caterpillar has opened its new U.S. plants almost exclusively in low-wage “right-to-work” states, reflecting the company’s broader wage-cutting strategy. In the larger picture, Caterpillar’s workforce outside the United States leaped from around 13,000 in the early 1990s to more than 71,000 in 2011, now comprising 57 percent of the firm’s total employment. Caterpillar has recently been expanding in China, and now has 31 facilities there, including 27 factories.

Those who boast of an insourcing boom tend to cling to a few isolated examples and tune out the bigger picture. According to international economist Robert Scott of the Economic Policy Institute, who has written several detailed reports on U.S.-China trade, there are very few indicators that insourcing amounts to a trend of anything beyond microscopic significance. “I haven’t seen any surge in insourcing,” he states flatly. “In fact, multinational firms [have long] had deficits in trade with China and it’s been growing upward the last two decades. The U.S. has once again seen trade deficits with China in 2013 [$318.4 billion], with over 95 percent of our imports from China coming in as manufactured goods.”

Yet Obama and others remain stubbornly committed to the notion that high shipping costs and rising wages in China are driving American-based multinationals to, well, at least think “about insourcing jobs from abroad.” To be sure, wages in China are rising, a fact that U.S.-based CEOs find unsettling. The Conference Board, for example, warned its corporate members that from 2000 to 2011, the compounded annual wage increase in China across twenty-four industries averaged 13 percent. And the Economist recently cited “soaring” wages as a key factor driving corporations from China: “For the past three decades, multinationals have poured in [to China]. . . . Now it looks as though the gold rush may be over.”

Indeed, U.S. executives began to grown uneasy as early as 2006, when China proposed a new “labor code” that provoked threats of departure from U.S. and other foreign employers. China ultimately adopted a milder set of rules in 2008, bowing to the pressures of the foreign firms while still trying to defuse the potential explosion that could be ignited by widespread militancy among young Chinese workers. “The Labor Contract Law enacted in January 2008 tries to guarantee contracts for all full-time employees, but leaves many details vague,” as the New York Times noted in 2010:

The laws, enacted in 2008, were intended to channel worker frustrations through a system of arbitration and courts so no broader protest movements would threaten political stability.

But if recent strikes and a surge in arbitration and court cases reflect a rising worker consciousness partly rooted in awareness of greater legal rights, they also underscore new challenges in China. The labor laws have raised expectations, but still leave workers relatively powerless by Western standards.

The wage gap between the United States and China, moreover, remains immense. Chinese wages were starting from such a low floor that these sharp increases still left average Chinese pay at $1.74 in 2009, the latest year for which the U.S. Bureau of Labor Statistics had an hourly figure available. Thus, even factoring in the post-2009 increases, Chinese wages are still a small fraction of the U.S. manufacturing average of $35.67 an hour. (The United States still lags far behind Norway at $63.36 an hour and Germany at $45.79.) Despite wage increases in recent years, therefore, a vast proportion of U.S.-based multinationals still count on China for cheap labor—including GE and Caterpillar, praised so lavishly for their “insourcing.”

And even if—as a U.S. Chamber of Commerce survey reports—one in five companies is considering pulling out of China, few of them are contemplating returning their facilities to the United States. Instead, as Mary Frederickson points out in her fine book Looking South: Race, Gender, and the Transformation of Labor from Reconstruction to Globalization (2011), “Vietnam, Bangladesh, and India top the list of contenders.”

As long as U.S. firms can continue to scour the planet for low wages, Obama’s talk of insourcing will amount to little more than wishful thinking. In a year when Democrats are facing another difficult midterm election, the president’s rhetoric is sure to ring hollow with voters who continue to face the dwindling supply of family-sustaining jobs in their communities. Moreover, this complacency diverts public debate away from the kind of industrial policy that the country so urgently needs.


Roger Bybee is a long-time writer, labor activist, and instructor in Labor Studies at the University of Illinois.


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