The looming American manufacturing boom

OPINION:

Corporate finance news outlet CFO Brew recently reported that Federal Reserve surveys painted “a mostly lackluster picture of September manufacturing activity” across the country. The Institute for Supply Management said a contraction in U.S. manufacturing reached its sixth straight month. Researchers at the Massachusetts Institute of Technology say American manufacturing is in a “quiet crisis.”

Really? A crisis? The people who look at this data and think U.S. manufacturing is in crisis are missing what’s actually happening. What’s actually happening is a looming manufacturing boom.

Case in point: I have a client near Philadelphia that sells coated and laminated film products for packaging, labels, rubber, sealants and tape. A few years ago, India and China were its main sources of supply. My client has changed suppliers to domestic companies. It changed what it bought, investing instead in new property and equipment to do more coating and laminating itself, here in the U.S. It has increased its workforce by 30% in the past two years. Its general manager tells me it has a list of prospective customers “begging” to buy once it’s fully up and running.

To be sure, none of this is happening immediately. You can’t reverse decades of manufacturing decay and neglect in a few short months, but just wait. Big things are happening, and we’ll see their results in the next few years. What big things, you ask?

For starters, American companies learned about the supply chain the hard way thanks to the pandemic. For years, the narrative among my clients was always “just in time” and “peak inventory efficiency.” Now it’s “increased safety stock” and “higher reorder points.” Companies have learned to build better reserves, improve their communications with their suppliers and lean into newer, artificial-intelligence-driven software systems that better predict demand.

Higher tariffs are also making U.S. goods more cost-compatible. Say what you want about the Trump administration’s tariff policies, but they are driving companies like my client to bring more manufacturing back onshore.

The general manager at my client is running a relatively small business with fewer than 200 employees. If you don’t want to take his word, consider what big businesses are doing. Since taking office in January, the Trump administration has announced “trillions of dollars” in new manufacturing investments in the U.S. led by companies such as Apple, IBM, Johnson & Johnson and Roche, which are building new factories all over the country that will ultimately employ tens of thousands of people.

Then there’s growing government investment in manufacturing. The Biden and Trump administrations have shown significant support for manufacturing, with legislation such as the CHIPS and Science Act, and pushing the Small Business Administration to enhance manufacturing support by offering programs such as Make Onshoring Great Again, increasing access to capital, and expanding advocacy programs. The new tax-and-spending bill has significant tax breaks for manufacturers that want to buy equipment and build new plants. In just the past few years, many states have increased support for lower-cost industrial development loans, grants, tax credits and workforce development training to support local manufacturers.

“American manufacturing is growing and is poised for continued growth as new markets, industrial policies, and customer demands are helping to expand U.S. manufacturing,” accounting and consulting firm Deloitte reported in March. “A sustained focus on industrial policy at the federal level and cooperation with industry will provide opportunities to improve U.S. manufacturing competitiveness while overcoming existing challenges.”

All this takes energy, and the U.S. has that too. We are one of the world’s leading oil and coal producers with reserves that can last for the foreseeable future. New technologies are providing advanced liquid cooling, molten oxide electrolysis and better conversion of industrial steam, which are making significant changes in energy usage (without succumbing to climate panic) and will continue to adapt our consumption to the inevitable demands of our growing manufacturing sector.

Finally, there’s the impact of AI. As the technology matures, AI bots will be operating in every piece of equipment on the factory floor, tracking production, identifying malfunctions and even remediating problems. Agents will be doing the work of many back-office workers, significantly reducing manufacturer overhead and increasing margins. Robots made by companies such as Boston Dynamics and Agility Robotics will be doing what smaller manufacturers already do for companies such as Amazon and Toyota.

Will this replace jobs? Of course. Yet it will reduce costs and enable more to be done with existing resources. It will also create opportunities for more startups to build manufactured goods in the U.S., thanks to the ease and low cost of overcoming what is still a high cost barrier to entry.

In the history of industrial civilization, technology has replaced blacksmiths, typing pools, switchboard operators, travel agents and a whole bunch of other jobs. People seem to always find other things to do.

For decades, manufacturing in the U.S. has dropped as work has been shipped overseas thanks to lower prices, a lack of infrastructure investment and a diminishing labor supply. These trends are now reversing significantly. The results won’t be seen in the next year, but the smartest managers I meet, such as the general manager of my client, aren’t thinking about next year. They have their eyes set on 2027 and beyond, and they’re very optimistic.

• Gene Marks, CPA, runs The Marks Group PC, a financial and technology consulting firm near Philadelphia.