There is an important rule that one must adhere to in the manufacturing industry: secure the process to sell the products. This rule has a double meaning. Securing the process means understanding the process and stabilizing it, as variations in the process can lead to failures and quality issues. Securing the process also means ensuring that your competitors don't know all the details about the process lest they get close to producing your products.
What many people remain unaware of is the fact that a large section of the manufacturing industry produces parts, components and even complete products for other companies.
Take a car for example. On average, manufacturing a car involves about 30,000 parts and up to 150 suppliers. Automobile manufacturers and part suppliers collaborate to ensure that quality standards are met and new products are developed in time to respond to market developments.
These complex supply chains and collaborations entail a constant transfer of knowledge and transparency around the processes. Suppliers want to make sure they deliver according to the requirements while their customers want to make sure they get the quality they need.
Without knowledge transfer and collaboration, none of these complex supply chains would be possible. To "secure the process" with all these partners is a matter of contractual conditions that keep the manufacturing engine running.
In the mid 1980s, most U.S. corporations discovered the advantages of outsourcing production to so called low-cost countries which launched a plethora of manufacturing jobs being outsourced, offshored and whatever other marketing slogan was invented to describe the strive to increase profits by producing abroad.
Mexico and Brazil got the first boost of manufacturing jobs. Being cheaper than local production meant higher profits, and less people on the payroll meant fewer liabilities and obligations.
Some U.S. corporations started building factories in low-cost countries while others contracted existing factories to produce parts and components. In the mid 1990s, they even shifted toward producing entire products abroad, with the U.S. automobile industry reaching a break even between cars produced locally and abroad. In the same wave, U.S. corporations discovered an even better market for low-cost manufacturing: Asia. With China being the largest market worldwide aspiring to become the factory of the world, a lot of deals were made.
It started with simple and large volume standard parts like screws. They were fast to produce and had standard specifications. The major advantage for U.S. corporations was that despite the shipping costs from China, the price was still significantly lower. And with that a journey to outsource more production capacity to China began. It doesn't take much effort to understand that outsourcing production to another country means less jobs locally. But corporate profits were rising and that is what mattered for shareholders and investors.
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| A woman records a video on TikTok, a short video-sharing platform highly popular among the American youth. /AP |
At the turn of the century, China had become what it was inspiring to be: the factory of the world and supplier of parts and products for all sectors of the global economy. And with that, the transfer of knowledge about processes and products continued to grow. Partnerships were built, relationships deepened. I remember weekly calls with our Chinese partners to improve processes and increase volumes, and I certainly was not the only one.
I also remember asking our Chinese partners to help us out with certain issues to increase volume or speed up deliveries. That is how partners collaborate. I also remember the wonderful stories from U.S. peers about their business trips to China to startup new products on entire production lines moved from U.S. factories to China. Stories about culture and food, theaters and expositions. And stories about people being every eager to learn and improve.
China worked hard to become good at what it does and move away from just being a manufacturer of inexpensive products. U.S. corporations started this push to decrease their costs and increase their profits. U.S. consumers joined the party by ordering products made in China, even when some were labeled "designed in California" to hide where they were actually produced.
And suddenly there was an outcry about jobs being stolen by China and technologies being copied. Sanctions were imposed to reduce volumes produced by Chinese companies, and those Chinese companies that were able to surpass the technology of their U.S. competitors were slapped with bans and attempts to push them out of the market. This is what is happening now with Huawei and TikTok.
Will these measures really bring jobs back to the U.S. or are they only designed to harm China's economic growth? U.S. corporations, commonly mimicked to be the Corporate America, have outsourced their production to increase their profits and are unlikely to decrease profits for political purposes. Shareholders are not interested in seeing their dividends and portfolio downgraded because "MAGA" says it's a great idea.
The U.S. semiconductor industry is already feeling how this strategy is harming their business interests and becoming very vocal about the negative impact of the aggressive campaign against Chinese companies. And this is just the beginning. Even if the shortsighted intention is to bring jobs back to the U.S., it will only harm the U.S. economy, and it already has.
U.S. President Donald Trump has offered stimulus packages to decrease this negative impact. But wait, isn't that state sponsoring, an accusation we hear coming from the White House about China? Trump even stated that he will impose sanctions on U.S. corporations which refuse to reduce imports from China.
This is not about improving the U.S. economy, this is a power play to force China into being the subordinate of Corporate America again, like it was some 20 odd years ago.
Johannes Drooghaag is an analyst and strategist for cybersecurity in the Netherlands and author of "The Human Element in Cyber Security.
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