Saturday, December 17, 2022

Guest post on bringing manufacturing back

---I reached out to a manufacturing professional who I used to work with and asked him what it would take to "bring Manufacturing back to the US and Canada". I specifically asked him about photovoltaic cells for reasons that will become obvious in a later post. The following is his reply---

...If I were “running the universe” we would not be on a war-footing with China or Korea and not be in the vulnerable position we currently find ourselves.

The Photovoltaic technology was originally invented and developed in the USA, funded by the US government for NASA. My old associate, Standford Ovshinski advanced the technology and manufacturing processes via numerous federal grants that he secured. Former GM CEO Bob Stempel went to work for Ovshinski after Stempel was ousted by the bean-counter GM Board of Directors.

Approximately 22 years ago, I asked Ovshinski why he wasn’t manufacturing PV panels and various NiMH and Lithium-ion batteries in the USA. Note that he and his team in Michigan invented much of that battery technology, also funded by the US government. He told me that he was really into the R&D stuff — not mass production— but would license his technology/patents to any willing manufacturers.  

Ovshinski said that the US firms preferred to set up production in Asia, for cheap labor. What he may not have fully understood was that many US firms set up production in Asia because China and Japan, etc., were bigger markets than the USA and prohibited the sales of imported consumer products from the USA.   (Emphasis ERJ's)

So, US firms — more than a thousand of them, including Ford, GM, Chrysler, Caterpillar, Duracell, Eveready, etc. — either opened factories in Asia or outsourced production ---and the technologies associated with that production--- to partners in Asia. The US government not only went along that, but also subsidized it by not taxing it.

Trump’s tariffs on imports was a start in the right direction, but insufficient. The Chinese and Japanese “administrative” tariffs against imported manufactured goods was nearly 100%. The US tariffs should also be comparable— at 100% on any trade deficits.

As the person in charge, I would require balanced trade and would impose a 100% windfall tax on imbalanced trade profits.  I would also change the income tax system to revert, somewhat, to the US system of 50-60 years ago. The US tax system is the main reason for why US-based firms are not mass producing PV panels, batteries, computer chips, smartphones, home electronics, shoes, clothing, personal computers, etc.


  1. What about the tax system prevents mass production in this country? What was the tax system in 1960?


      Corporations are now much more sophisticated at "gaming" the code.

  2. Add in the EPA and local equivalents (California's Air Resources Board) who write punitive regulations on all sorts of things that drive production overseas.

    Interesting trivia. If you see a Steinway piano with a glossy finish it was built in Germany. American-built Steinways all have a more matte finish because the VOC rules in America have effectively banned the use of the materials needed for the full shine.

    1. This and fifty cents an hour labor made it pretty hard to not move a lot of production to China.

  3. Do it here, pay taxes here. Do it there, pay no taxes here.
    Of course US companies chose to do it there. The policy wasn't stupid, it was evil.

  4. Replies
    1. Short answer: Yes.

      Longer answer: Yes, but he was not as effective as needed. Reasons are legion. He was fighting entrenched interests (a.k.a. The Deep-State). He was distracted by other things things...and could not resist responding to those distractions.

  5. Japan (for historical reasons) and China (for more recent, economic and political reasons) have had a very different view (at least historically) of industry and its importance to national affairs. This has been as much of an issue as the labor costs and tax structure, which also gave impetus to offshoring of labor.

    I am enjoying the conversation on this, ERJ. It is a good theoretical discussion with practical implications.

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