The U.S. manufacturing sector is experiencing a historic resurgence, reshoring production at an unprecedented rate. However, this renaissance comes with its own set of significant challenges that need strategic solutions.
The U.S. is currently experiencing a manufacturing renaissance, with new facilities being built at a record pace. In 2022, spending on new manufacturing construction soared to an annual rate of $114.7 billion, marking a 40% increase from the previous year and a 62% rise over the past five years, according to the U.S. Census Bureau.
Several factors are driving this reshoring trend, including the CHIPS and Science Act, rising labor and transportation costs, U.S. tariffs on China, geopolitical tensions, and a desire to reduce single-source dependency and enhance supply chain resilience.
A recent report on global chip supply chains projects that the U.S. will triple its domestic semiconductor manufacturing capacity between 2022 and 2032. However, reshoring manufacturing to the U.S. comes with its own set of challenges.
Key industries such as automotive, semiconductor, high-tech, and aerospace and defense are leading this reshoring wave. For instance, the U.S. semiconductor market in aerospace and defense is expected to reach $7.93 billion in 2024. Major players like Intel, NVIDIA, Samsung, and Micron Technology are expanding their footprint in the U.S.
While reshoring offers numerous benefits, including shorter supply chains, increased national security, improved quality control, and economic and job growth, significant hurdles remain. Here are five major challenges facing U.S. manufacturing:
1. Powering U.S. Manufacturing: Building a manufacturing facility is often the easiest part; the surrounding infrastructure and utilities pose greater challenges. The U.S. electricity grid is becoming less reliable as fossil fuel and nuclear power plants are decommissioned, while renewable sources like solar and wind are not yet backed by enough storage and transmission capacity to meet future demand.
For example, the TSMC chip plant being built in Arizona will initially create 200 megawatts of demand, enough to power approximately 40,000 homes. With up to five additional fabs planned for the area, the electricity demand could surge to an astonishing 1,200 megawatts. An unreliable power supply can disrupt manufacturing operations, and the vast amount of electricity needed for new onshore manufacturing comes at a time when America’s power grid is increasingly unstable. Meeting the increased demand, particularly from energy-intensive industries like high-tech, will require a delicate balance between electricity supply and demand, preventing energy curtailment or worse, blackouts.
2. Labor Issues: Despite 570,000 U.S. manufacturing job openings in March of this year, it’s projected that by 2033, an estimated 1.9 million manufacturing jobs could be vacant. Finding enough skilled workers is a major obstacle for companies in the U.S. Assessing the labor supply and cost in proximity to potential manufacturing sites is crucial. Labor shortages can impact supply chains in many ways, including the inability to meet production demand, reduced output, longer lead times, delays in opening new factories, lost revenue, and an inability to invest in new technologies.
Labor disruptions are another notable risk for manufacturing. Labor disruptions, due to strikes, layoffs, and protests, increased 74% in 2023 from the previous year, according to EventWatchAI, Resilinc’s supply chain risk-monitoring application. In Q1 of 2024, labor disruptions already ranked as the number-two disruption impacting the manufacturing industry. With a tight labor market and inflation, labor unrest is likely to continue.
3. Climate Change Risk: This year, Resilinc has tracked over 300 extreme weather events that can wreak havoc on supply chains. Historical data shows that the frequency and intensity of extreme weather events like heatwaves, flooding, droughts, and hurricanes are increasing every year.
According to NOAA, April 2024 was the hottest month on record, continuing an 11-month global record-breaking streak. Rising temperatures contribute to more powerful hurricanes, stronger winter storms, floods, extreme heatwaves, and droughts. Hurricanes can seriously disrupt supply chains by damaging critical infrastructure such as roads, railways, and ports; severe winter storms can strain energy grids, causing power outages and halting manufacturing; and extreme heatwaves or drought can cause shortages of critical
