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William A. Levinson

Supply Chain

Reshoring Must Be Our Top Priority

Quality pros are key to helping U.S. workers earn high wages while maintaining lower prices, higher profits

Published: Monday, April 26, 2021 - 11:03

The current national controversy over the need for a mandatory high minimum wage is but a symptom of a much larger underlying problem: the offshoring of American manufacturing capability.

Offshoring ruined Spain and Portugal during the 16th century, and it is similarly a clear and present danger not only to the American worker’s standard of living but also to the national security of the United States. The good news is, however, that the quality and manufacturing professions are ideally positioned to help the United States reshore its manufacturing capability, using simple principles that predate the quality profession and industrial statistics.

The benefits of reshoring include:
1. High-wage jobs for U.S. workers, and I am talking about jobs that pay more than $20 an hour, as opposed to the $15 an hour that is now under discussion. Manufacturing firms in Northeast Pennsylvania are running radio ads for entry-level jobs that pay well over $15 an hour.
2. A corresponding increase in taxable economic activity that could even, given enough productivity improvements, eliminate the federal deficit and allow us to begin to pay down the national debt
3. Independence from a hostile foreign government for life-saving medications, frequently counterfeit and substandard personal protective equipment (PPE), rare earths for electric vehicles and other applications, semiconductors, military components, and consumer goods

Aside from the need to defeat Covid-19 (and the end of that is now in sight due to vaccine availability), the need to reshore is probably the most urgent issue for the United States. Our growing dependence on the People’s Republic of China (PRC) for manufactured goods is a clear and present danger not only to our economy but also our national security.

The People’s Republic of China (PRC) is a dangerous and expansionist rival

The government of the PRC is a menace to regional and world peace, as shown by its implied and overt threats to other countries such as Taiwan1 and Japan.2 The parallels to the behavior of Germany, circa 1938, cannot be ignored, which makes American economic support for, and technological collaboration with, this regime highly problematic. The real tragedy of the PRC’s behavior is that, as Henry Ford pointed out roughly 100 years ago, countries that can manufacture almost limitless wealth should have no incentive whatsoever to use violence to try to steal it from others, and this is where the quality and manufacturing professions play a central role.

The last time a country was collectively better off for having fought a war was probably in 1905, when Japan made extensive territorial gains at the expense of Russia. None of the belligerents of the WW I were better off for having fought, and the aggressors of WW II (including the Soviet Union, which had to change sides in 1941) would have been far better off had they stuck to running their factories and making things instead of invading other countries. North Korea’s standard of living could rival South Korea’s if it focused its efforts on industry instead of preparing to restart the Korean War.

The PRC has access to almost limitless natural resources, and it can easily trade for whatever it does not have.

This does not mean, however, that the PRC is any kind of existential threat to the United States itself. “Rivalry with China should thus be conceptualized by the U.S. foreign and security establishment as a limited competition in particular areas, not a universal and existential struggle between good and evil,” according to Anatol Lieven.3 Nobody believes rationally that the PRC intends to invade the United States, seeks to impose Communism on the United States, or plans to launch a surprise attack on the United States. The PRC does, however, want to expand its sphere of influence in the South China Sea, the same way that Imperial Japan wanted to extend its regional influence during the first half of the 20th century.

Japan launched a surprise attack on Russia in 1904 (Port Arthur) and then destroyed the Russian Baltic Fleet at Tsushima (1905), not with the objective of conquering the European portion of Russia or even Siberia, but rather to gain a free hand in Manchuria and Korea. Imperial Japan then attacked Pearl Harbor, not as any kind of prelude to an invasion of the continental United States but instead to gain a free hand in the Pacific. The leaders, except for Admiral Yamamoto who warned them explicitly against this action, believed apparently that we would not be able to interfere with their plans without any capital ships in the Pacific. If they had caught our aircraft carriers at Pearl Harbor, they might have even succeeded. They also surely knew, however, that if they invaded California, we would do whatever it took to defeat them.

It also should be remembered that, as of September 1939, Germany’s agenda was not to invade France or the United Kingdom, but instead to expand into Poland under the doctrine of Drang nach Osten (“Drive to the East”). Only when France and the UK honored their alliances with Poland, instead of dishonoring it as they did with Czechoslovakia, did Germany overrun and occupy France. Germany, in fact, tried to make peace with Britain in mid-1940 so it could pursue other geopolitical goals. “Without delivering any ultimatum, Hitler said that it had never been his desire or his aim to destroy the British Empire,” notes Frederick Oechsner.4

The PRC, as elaborated below, almost certainly has a similar agenda. It is not going to create a situation that could lead to a nuclear exchange that neither side would be likely to “win,” and its rulers also know that we are not going to go this far if they do not push us into a corner. What the PRC can do, and is seeking to do, is to gain an overwhelming conventional advantage in the region that we cannot challenge, and also position itself to cripple our economy by cutting off vital exports. The PRC has, as shown below, made open threats along these lines.

The PRC is also a prominent human rights abuser, as evidenced by its imprisonment of Uighur Muslims in what the PRC calls “Vocational Education and Training Centers,” for which there were obvious parallels in Germany during the early 1940s and also the Soviet Union’s gulags. The PRC is also menacing the freedom of Hong Kong, despite guarantees of autonomy, and has more recently threatened to cut off vital medical exports to the United States. An article in Xinhua, the PRC’s official news agency, threatened, “Then the United States will be caught in the ocean of new coronaviruses.... If China banned exports [of medicines and their raw materials], the United States will fall into the hell of a new coronavirus pneumonia epidemic.”5 In addition, “China hints at denying Americans life-saving coronavirus drugs,”6 and “U.S. officials worry about Chinese control of American drug supply.”7

This is a strong argument8 for reshoring U.S. drug manufacturing to the point where it is independent not only of PRC malice but also force majeure such as, for example, ships getting stuck in the Suez Canal along with supply chain disruptions due to Covid-19 itself. Henry Ford used vertical supply-chain integration for a very good reason, and the automotive IATF 16949:2016 standard now focuses far more heavily than ISO 9001:2015 on supply chains and continuity of operations.

The PRC’s dangerous loss of the Mandate of Heaven

The PRC may become far more desperate, and therefore far more dangerous, in light of recent menaces to what China has for thousands of years called the “Mandate of Heaven.” This is not Europe’s divine right of kings, as in, “the monarch is appointed by God and can therefore do no wrong,” but rather the right to lead earned through service to one’s followers.

Henry Ford described the same principle, and his bottom-line results spoke for themselves: “The producer depends for his prosperity upon serving the people. He may get by for a while serving himself, but if he does, it will be purely accidental, and when the people wake up to the fact that they are not being served, the end of that producer is in sight.”9

This principle carries over into ISO 9001:2015’s emphasis on the needs and interests of relevant interested parties or stakeholders.

The worst imaginable disaster for a Chinese ruler is therefore the perception that he or she is not serving the people, in which case China’s ancient culture gives the people the right to replace him or her.

Kent Wong10 is a Chinese-American who reports how, during the Cultural Revolution, he and others escaped to Hong Kong by swimming up to six miles, just as South Vietnamese risked their lives in open boats to reach the United States and become Americans. Wong had been sent previously to a village for “re-education” when his father was denounced as a “capitalist rightist.” Wong adds that he is now afraid to even visit Hong Kong, and I am sure the PRC regards him and others like him as embarrassments.

When people swim six miles to leave your country, you do not have the Mandate of Heaven. When Hong Kong Chinese wave American instead of PRC flags, you do not have the Mandate of Heaven. When you must threaten the UK for welcoming immigrants from Hong Kong, you do not have the Mandate of Heaven.11 The Berlin Wall was once there to keep people from leaving rather than entering, and this is just more of the same.

Wong adds that the PRC will defeat the world’s free nations by using “soft power” in the form of industrious and cheap labor—the same cheap labor that has encouraged U.S. companies to offshore manufacturing jobs—and traditional “hard power.” Quality and manufacturing professionals can and should fight the PRC’s “soft power” at every opportunity to ensure that our Armed Forces will never have to deal with the PRC’s “hard power.” We must first, however, know our enemy as well as ourselves.

Beijing’s playbook: The Art of War

The PRC’s use of “soft power” in conjunction with “hard power” is consistent with Beijing’s playbook, Sun Tzu’s Art of War. The Swedish metal rock group Sabaton wrote a song about this ancient text12 which contains the significant line, “Win but never fight; that’s the art of war.” I have read several translations of this book, including one by Shogun author James Clavell, who described accurately the blunders made by the United States in Vietnam and by all belligerents in WW I. Even more significant is that Mao Tse-tung used the same title in a book he based on Sun Tzu’s original work, and used Sun Tzu’s methods to defeat Chiang Kai‐shek. The Wikipedia entry for the book adds that Ho Chi Minh and General Võ Nguyên Giáp, who fought the United States to exhaustion in Vietnam, were avid students of Sun Tzu, as were feudal Japan’s three unifiers (Oda Nobunaga, Toyotomi Hideyoshi, and Tokugawa Ieyasu—“Toranaga” in Clavell’s novel). Ieyasu’s rival Takeda Shingen had a war banner that contained a passage from the Art of War.

A public domain translation of The Art of War by Lionel Giles13 is highly instructive. As but one example, “There is no instance of a country having benefited from prolonged warfare,” and this is exactly how North Vietnam wore down the United States’ superior military organization. More to the point are the phrases, “Hence to fight and conquer in all your battles is not supreme excellence; supreme excellence consists in breaking the enemy’s resistance without fighting,” and, “Thus it is that in war the victorious strategist only seeks battle after the victory has been won, whereas he who is destined to defeat first fights and afterwards looks for victory.”

The PRC knows that the United States won World War II by overwhelming the Axis with its manufacturing power, to the extent that we out-produced all the other belligerents (Allies as well as Axis) put together. Beijing can follow Sun Tzu’s advice to “win before you fight” by building its own manufacturing capability at the expense of ours, so when it finally makes its move on Taiwan or even Japan, we will not dare offer any resistance. The PRC might not even have to threaten us with violence if it is in a position to shut down our economy by cutting off exports of materials and products we can no longer make for ourselves. If it can grab us by our bills of materials, our hearts and minds will have to follow.

This is a classic example of conquering an enemy who is already defeated, and it is not the first time this has happened. The first time was, however, more by accident than design, but the same issue applies to the United States today.

How the New World’s gold ruined Spanish and Portuguese industry

Spain’s discovery of the New World and its treasure in 1492, followed by Portugal’s discovery of treasure in South America, should have made those two countries the most powerful on earth. Spain’s last hurrah was, however, at Lepanto in 1571, after which it declined quickly into a second-rate power after its defeat at Gravelines (1588) at the hands of Great Britain. Even Lepanto has an asterisk on it for Spain because galleasses from the Venetian Arsenale, whose process-oriented layout could mass-produce advanced warships,14 played a dominant role.

The mighty Spanish galleons that had ruled the waves less than 100 years ago were meanwhile no match for superior British naval architecture and weapons in 1588. Spain and Portugal used their gold and silver from the New World to buy manufactured goods from their rivals England and Holland, with the result that their own manufacturing industries crumbled to ruin while their rivals ended up with most of the gold and silver as well. Alfred Thayer Mahan’s The Influence of Sea Power Upon History, 1660–178315 explains exactly what happened.

“...[Spain] herself produced little but wool, fruit, and iron; her manufactures were naught; her industries suffered; her population steadily decreased. Both she and her colonies depended upon the Dutch for so many of the necessaries of life, that the products of their scanty industries could not suffice to pay for them. ‘So that Holland merchants,’ writes a contemporary, ‘who carry money to most parts of the world to buy commodities, must out of this single country of Europe carry home money, which they receive in payment of their goods.’ Thus their eagerly sought emblem of wealth passed quickly from their hands....

“The fortunes of Portugal, united to Spain during a most critical period of her history, followed the same downward path: Although foremost in the beginning of the race for development by sea, she fell utterly behind. ‘The mines of Brazil were the ruin of Portugal, as those of Mexico and Peru had been of Spain; all manufactures fell into insane contempt; ere long the English supplied the Portuguese not only with clothes, but with all merchandise, all commodities, even to salt-fish and grain. After their gold, the Portuguese abandoned their very soil; the vineyards of Oporto were finally bought by the English with Brazilian gold, which had only passed through Portugal to be spread throughout England.’”

The same thing is happening to the United States today. We are sending dollars, often borrowed, to a dangerous rival to buy things we can and should make for ourselves. The PRC is now buying up property in the United States the same way the British bought the Oporto vineyards from Portugal. Even worse is the fact that we export raw materials to the PRC in exchange for manufactured goods, which is the relationship characteristic of a colony and its colonial master.

This information should hopefully equip every quality and manufacturing professional with what he or she needs to know to advocate for reshoring.

Beijing tips its hand

We have seen so far that the PRC has followed Sun Tzu’s manual to the letter by winning before it fights, i.e., by reducing the United States and other rivals to a state of relative helplessness through control of vital supply chains. The PRC has, however, contravened one of Sun Tzu’s most important warnings, again per the Giles translation. “If a secret piece of news is divulged by a spy before the time is ripe, he must be put to death together with the man to whom the secret was told” or, as put more succinctly in The Good, the Bad, and the Ugly, “When you have to shoot, shoot; don’t talk.” The time to make an overt threat is after the intended victim is helpless to do anything about it, and not before.

The PRC has, as shown above, threatened openly to disrupt our supply chains and continuity of operations. We therefore must take rapid and decisive action to ensure that it can never put any of these threats into effect.

Friends don’t let friends buy PRC military components

Am I the only one who sees problems with the incorporation of PRC-made parts into military products with which our service personnel must trust their lives? A Senate committee determined that “Thousands of United States’ warplanes, ships, and missiles contain fake electronic components from China.”16 This happened with the full knowledge of the PRC’s government.17 Ian Simpson adds that it can cost up to $2.7 million to replace a counterfeit part in a missile.18

The PRC knows from hard experience how easy it is to ruin an army or a navy with substandard parts. There is a Chinese-language movie about the Battle of the Yalu River (1894) in which Chinese sailors struggle, while under a hail of fire from a Japanese cruiser, to file shells to make them fit into the ship’s cannon.19 The Wikipedia article about the conflict supports this story by saying that some of the Chinese shells were the wrong caliber, while others were filled with cement instead of explosives. The movie also features a scene in which a Chinese shell penetrates a Japanese cruiser’s armor to end up in a room full of propellant charges. The Japanese, who expected to be blown to pieces, finally enter the room to find the unexploded shell lying among the charges.

Frank Theiss’ The Voyage of Forgotten Men (The Bobs-Merrill Co., 1937) reported similarly that some of the Russian shells used at Tsushima (1905) were made from cast steel rather than the specified rolled steel, with the result that they often broke up on impact with Japanese armor.

These incidents underscore not only the unethical but often criminal nature of falsifying quality records and selling nonconforming parts, and Joseph Juran’s book on the history of quality reports that Tsar Peter I imposed punishments ranging from flogging and banishment to loss of vodka rations for those who did so. On the other hand, it is hardly disloyal or treasonous to sell nonconforming military products to one’s enemy, which is what the PRC is now doing to the United States.

Although the problems with our Mark 14 torpedo were not, unlike those with the Chinese and Russian shells, due to corruption, American submarines entered WW II with weapons that often did not work. The unexploded bombs (UXBs) left over from WW II reflect two problems: the air crews that dropped them risked their lives for nothing; and the bombs are now menaces to people whom they were never intended to harm.

The bottom line is that if you can infest your enemy’s equipment with counterfeit and substandard parts, you can render it useless to (again) win before you fight. Defense products must be sourced domestically or from trustworthy nations like Canada and the United Kingdom, and not from a regime known for poor quality, counterfeit parts, and intellectual property theft.20 The United States needs to look to its own quality and manufacturing professionals to put this into effect.

An off-the-shelf solution

The bad news is that the United States has, through short-sighted financial metrics that treat labor as a cost to be minimized by whatever means are available, placed itself at the mercy of a dangerous and ambitious foreign power whose behavior is very reminiscent of that of Germany and Japan during the late 1930s. The good news is that U.S. industry triumphed during WW II despite loss of access to natural rubber (for which we developed a synthetic substitute) and other resources. We must, as shown by this poster from WW II, treat the current situation as a war, even though no shots are being fired, and repeat what we did to prevail in 1941–1945. We did it then, and we can do it now.

Remember that Henry Ford didn’t know what a sigma, much less a Six Sigma, was, but he did know that variation was bad, and he designed his processes to have as little as possible—not just in terms of critical-to-quality characteristics but also for the rate of production and even his supply chain. The result was, among other things, that the United States could make equipment more rapidly than the Axis could destroy it.

If we return to the original issue of wages, Harrington Emerson21 decried in 1911 the false economy of objecting to a 10-percent wage increase while tolerating a 50-percent inefficiency in a job. Frank Gilbreth proved at roughly the same time that brick laying as practiced for perhaps thousands of years wasted 64 percent of the skilled mason’s labor by forcing him to bend over to pick up each brick.

Ford claimed that many agricultural jobs, such as carrying water in buckets, wasted 95 percent of the worker’s labor, and this kind of waste persists today, as shown by photos and videos of migrant farm workers bending over to pick crops and then carrying them to collection points. Intelligent farmers have deployed carts on which the workers ride face down to pick the crops so they neither bend nor walk; the crops move below the worker as they might on a moving assembly line. The workers expend far less effort, harvest far more per hour, and can be paid more while the product costs less.

The same principles carry over into other industries, such as manufacturing and construction. It is indeed possible to pay a U.S. worker a high wage, side by side with lower prices and higher profits, than we might get by paying a PRC worker a low wage. Manufacturing and quality professionals can play a central role in making this happen.

References
1. Shih, Gerry. “China threatens invasion of Taiwan in new video showing military might.” Washington Post, Oct. 12, 2020.
2. Regalado, Francesca. “China poses a ‘security threat’ to Japan, Taro Kono says.” Nikkei Asia, Sept. 19, 2020.
3. Lieven, Anatol. “Stay Calm About China. Beijing’s ambitions shouldn’t be treated as an existential threat to the United States.” Foreignpolicy.com, Aug. 26, 2020.
4. Oechsner, Frederick. “Hitler offers Britain ‘peace or destruction’.” UPI Archive, July 19, 1940. 
5. Buncombe, Andrew. “U.S. and China in war of words as Beijing threatens to halt supply of medicine amid coronavirus crisis.” The Independent, March 13, 2020.
6. Chakraborty, Barnini. “China hints at denying Americans life-saving coronavirus drugs.” Fox News, March 13, 2020.
7. Dilanian, Ken, and Breslauer, Brenda. “U.S. officials worried about Chinese control of American drug supply.” NBC News, Sept. 12, 2019.
8. Ferry, Jeff. “It’s Time to Rebuild Domestic Drug Production in the U.S., for Both Health and Economic Reasons.” Industry Week, March 17, 2020.
9. Ford, Henry, and Crowther, Samuel. My Life and Work. Doubleday, Page & Co., 1922.
10. Wong, Kent. “My Hong Kong is now a paradise lost.” Los Angeles Times, March 28, 2021.
11. Kuo, Lily, and Wintour, Patrick. “Hong Kong: China threatens retaliation against UK for offer to Hongkongers.” The Guardian, July 2, 2020.
12. Sabaton. “The Art of War.” Sabaton, 2008, lyrics here.
13. Sun Tzu. The Art of War. Giles translation, British Museum, 1910.
14. Roser, Christoph. “Material Flow in the Arsenal of Venice 1797.” AllAboutLean.com, May 2, 2017.
15. Mahan, Alfred Thayer. 1890. The Influence of Sea Power Upon History, 1660–1783. Little, Brown and Co., 1890 (in public domain due to age).
16. Moore, Malcom. “U.S. weapons ‘full of fake Chinese parts’.” The Telegraph. Nov. 8, 2011.
17. NewsCore. “One million counterfeit Chinese electronic parts used in U.S. military, report finds.” Fox News, May 22, 2012.
18. Simpson, Ian. “Flood of fake Chinese parts in U.S. military gear: report.” Reuters, May 22, 2012.
19. 中日甲午战争血染大东沟. No English subtitles, but the problems with the Chinese ammunition are obvious. YouTube, 2020.
20. Daniels, Jeff. “Chinese theft of sensitive U.S. military technology is still a ‘huge problem,’ says defense analyst.” CNBC, Nov. 8, 2017.
21. Emerson, Harrington. The Twelve Principles of Efficiency. Engineering magazine, 1911.

Discuss

About The Author

William A. Levinson’s picture

William A. Levinson

William A. Levinson, P.E., FASQ, CQE, CMQOE is the principal of Levinson Productivity Systems P.C. and the author of the book The Expanded and Annotated My Life and Work: Henry Ford’s Universal Code for World-Class Success (Productivity Press, 2013).

Comments

Thanks for the clarity

Great article, and a valuable look back into history for how situations repeat themselves. Reshoring would be the ansewr to a lot of issues we currently have. Thanks for the effort you put into listing sources too!

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Lessons to be learned

A timely, interesting, and thought-provoking article.  Thanks for writing it. 

Brilliant analysis

Bill, your combining of economics, trade, politics, history, supply chains, quality, lean, and kaizen is astonishing. Well done.

article

We've given about a dozen talks on reshoring and trade war in China and US.  Keynoted a Reagan library talk.

You're right it's going to be a more important issue.  We're reaching out to qualtiy professionals who want to monetize this opportunity.Visit www.800Compete.com to view our solution.

  

I downloaded your presentation

Maybe I can quote you on some of the material in your presentation. It looks very good.

Bring manufacturing back to the USA

Very interesting, expansive article.  Thank you.  I agree that the USA should do everything possible to bring manufacturing back to the USA as soon as possible.  It's frightening to think of the "buying up America" actions by China and other countries - to which there is little push back.  In addition, the control China has over our country's medical supplies, medicine, etc. is truly disturbing. The direction that our country is leaning politically may be a deterrent to bringing manufacturing back to the USA as we look over the brink at socialism.  We need strong leadership again for the USA to regain its footing internationally.  Your concern, research, and thoughts are appreciated.  Hopefully, it reaches the people who can take the necessary actions.

Bringing back to OnSHore

The concept of bring int back home is interesting, but assuming all the nations start following it? Then where would be the market for the produce? When we talk of a nation, compare it with an industry - to how far should one go with its vertical integration? All the way to ore extraction? Since every step could choke its inputs. What an Induatry, and nation, does it find reliable partners and create w win-win situation for both so that the supply-chain partner can't afford to ditch us, nor can we afford to ditch them. Overnationalism only harms on long term, as the market for produces dry up. 

We have reliable trading partners

We have plenty of reliable trading partners, and Canada and the EU come to mind along with Taiwan, Japan, South Korea, and India that have not made overt threats to cripple our supply chains and have not condoned the sale to us of counterfeit and substandard semiconductors and active pharmaceutical ingredients. (Counterfeit and substandard parts are admittedly sold by businesses in some of these countries and also our own, but legal remedies are readily at hand. The PRC, on the other hand, seems to condone it.) While the PRC has large reserves of rare earths, we have our own deposits as well.

Also, I do not think the PRC is buying much from us in the way of manufactured goods. They want to buy raw materials and sell us manufactured goods, often of poor quality, which is exactly the relationship between a colonial master and its colonies, e.g. the UK and the Thirteen Colonies long ago. As matters stand, we are running a trade deficit with them. https://ustr.gov/countries-regions/china-mongolia-taiwan/peoples-republi... That is not the kind of relationship we need.