Industrial Insights with Rosemary Coates

Rosemary Coates 00:51

Glad to join you. Thank you.

Rosemary Coates 01:08

Well, I would say this year there's a continuum of companies considering where and how they're manufacturing worldwide. we're, you know, we're seeing kind of a, we have seen the kind of a steady growth in reshoring, although it's been a small growth, I would say. This year we haven't seen much additional jobs being created in the manufacturing sector. In fact, it's been quite flat for a year and a little bit down year over year in 2025 versus the past years. But I think there is a positive upward trend and some pent up demand that's been there for a while since the tariffs were put in place. we are seeing, once things stabilize a little bit more with respect to the tariffs and of course the war. then I think we're going to see a rebound and more investment in reshoring.

Rosemary Coates 02:13

Yeah. Yeah, that's really true. But I think the biggest disruptor with the tariffs a year ago, with companies not being able to predict what was going to happen, we know from studies that we've done that we can talk about later, that companies were holding back on their investment. They weren't building new factories. They weren't hiring people. just because they couldn't predict what was going to happen next with respect to the tariffs. So that really caused a pause in manufacturing growth, I think, as a result of the tariffs.

Rosemary Coates 03:09

Yeah, that's a good question. I think, you know, as we've gone through this, we've been, the Reshoring Institute has been around for 11 years. So we've been doing this for a long time. It wasn't just recently, it's been quite some time. And I think, you know, most of the reasons are exposure to risk, especially after the pandemic. mean, most companies have said or had a look at their long global supply chain saying, holy cow, mean, this is not going to work if we keep having risk out there with these supply chains where we're sourcing around the world unless we have some risk mitigation or capable of moving production around the world so that we can avoid some of these risks. And that includes moving production back to the US. And we know that most companies would prefer to manufacture here. We know this from a number of surveys that we've done. They would prefer to manufacture in the US, but companies are economic animals and they're going to make decisions based on the ability to make a profit, not just on how they're feeling. So there's a lot of decision-making and analysis that goes into this decision. If we can make it work economically, then most companies would favor manufacturing in America.

Rosemary Coates 04:46

Yeah, right. Yeah, we used to talk about economic patriotism back, you know, 10 years ago or so. But I don't think those decisions are so prominent anymore. Now, it's really based on the economics of the situation and being able to make an economic pitch for manufacturing here to serve the U.S. market in particular.

Rosemary Coates 05:42

Yeah, yeah, I mean, that's that's our product is to publish our research. We're a research organization. Fundamentally, we also do small consulting projects. That's how we stay alive. But primarily we are a research organization. We publish everything that we work on and it's all available on our website, which is ReshoringInstitute.org. We're a nonprofit and nonpartisan organization, so we don't take sides. We try to Just tell the truth. And you can download everything, read everything on the website, and we don't make you sign up for anything. It's all free and all accessible.

Rosemary Coates 07:17

Yeah, we've been working over the past year or so doing quite a bit of research on manufacturing in Mexico. one of the things that's quite evident is most of the automakers have moved there. So a lot of parts and so forth are made in both China and Taiwan. But a lot of that production has moved to Mexico as well as final assembly. So all the big automakers, Tesla, GM, Ford, some of the European makers are all in Mexico doing final assembly now. And so that means that the parts manufacturers, all the supportive supply chain has also moved to Mexico. Automotive is the largest category that's doing cross border commerce for Mexico. So if you look at it, If, for example, you are a parts maker in China and over the past year, the tariff rates to import into the US have been anywhere from about 45 % to 145 % back and forth on those parts coming into the US versus if you manufacture in Mexico and your products are the growth and the products, parts, labor in Mexico, you potentially can qualify for USMCA, which allows you to bring products in duty free from Mexico. So if you have a 100 % duty versus 0 % duty, it makes a lot of sense to go to Mexico. And then also the labor rates, surprisingly, are lower in Mexico than they are in China now.

Rosemary Coates 09:08

Yeah, China has really come up the maturity curve in the last 25 years, and they no longer have the lowest cost structure. In fact, there we did a survey, we looked at 10 job categories and I think 12 countries and Mexico ended up right in the middle. So it's not the lowest cost and it's not the highest cost either. On the low end is Mexico, India, Vietnam. of the countries that we surveyed. are other countries out there where it may be lower to produce products, but we chose the ones that were most popular. And Mexico wins in almost every category. In fact, some of the interior Mexico, well, Mexico has an overall minimum wage of a little over $3 an hour. And some of the least expensive places to manufacture are central Mexico.

Rosemary Coates 10:21

Yeah, yeah, absolutely. I mean, you can just, you know, produce your products and drive across the border versus putting goods in a container and putting it on the ocean. And then you've got a couple of weeks at least in the summertime, it's, you know, maybe 10 days on the ocean from China. In the winter time, it could be a few weeks. If you're in India, several weeks. So you've got all that investment and inventory on the water. versus Mexico where you just simply drive across the border. In fact, we were down in Laredo last year. I took one of our interns down to Laredo and yeah, yeah, yeah, I had to explain to his mother why I was taking her son to Mexico. We didn't actually go into Mexico, we just stayed on the Laredo side, but wow, it was astonishing. I mean,

Rosemary Coates 11:18

I've seen a lot of stuff around the world in my career, but I was blown over by the activity in Laredo. Laredo is just a sleepy border town, know, a few hundred thousand people, but they have the largest now, the largest US land port is Laredo, Texas. And they have, they told us they had 14,000 trucks per day.

Rosemary Coates 11:47

crossing the border. And I kept asking him 14,000, really per day, you know, I was totally surprised. They took us up to the international bridge and we watched for a while.

Rosemary Coates 12:05

So what, yeah, so we saw on the bridge, what happens is they've built a technology corridor where trucks, there's a preloaded information, preloaded documents and information into the import export system. The trucks are barcoded and so they're scanned and the truck and the trailer are both scanned. They use LiDAR technology like like you do at the airport, so they can scan the back of trucks to make sure there's nothing illegal back there. Through that, LIDAR scanning, they do facial recognition of the driver. And if everything matches up, they get a green light and they never stop at the border. They just drive right.

Rosemary Coates 12:56

Yeah, I mean, it was really amazing. mean, the trucks just go and go and go and go. And that's the way they can cross so many trucks per day.

Rosemary Coates 13:58

What is that? Yeah, you know, if it makes economic sense to manufacture there because of the low cost environment and you can facilitate the cross border traffic like that, it just is all around a good decision. then on of that, Claudia Scheinbaum, who's the new president of Mexico, has committed to building 100 industrial parks. And these are

Rosemary Coates 14:29

large footprint parks where there's many companies that are manufacturing in a specific area. They build the infrastructure for it and that facilitates commerce. So, you know, she's very pro-business and you can see it, you know, in her policies and in how they're focused on development. And of course, Mexico still has its problems. I mean, the infrastructure isn't, it's not like China, right? China is just,

Rosemary Coates 14:59

amazing when it comes to infrastructure. So it's not like China, but there are certainly developing and they still have their issues with crime and the drug traffic and so forth. But these are things that are being addressed and hopefully creating an environment that's very economically attractive to companies manufacturing. So we're the reassuring Institute. We'd love to see everything come back to the US. But you you have to realize that in some cases that you just cannot make the case for manufacturing in America. It's just too expensive here. So, you know, where we are seeing, you know, where there are companies that are coming back are those that can invest in full automation. So, you extract that labor. and make products that are made by machines primarily, and then it's easier to make that case.

Rosemary Coates 16:34

Yeah, absolutely. I think the vast majority, if not all, of the companies that we work with that are actually reshoring to the US are looking at automation and adopting robotics and these advanced machine tools, the use of AI to optimize the manufacturing processes. and optimize the supply chain in the US. So yeah, I mean, let me give you an example. If you're making men's shirts, that's your product, and you have a lot of sewing, there's a lot of sewing that goes into the manufacture of that product. So you've got a lot of people sitting at sewing machines that are sewing all day long.

Rosemary Coates 17:26

That's the kind of labor that we do not have in the US. We just don't. And we never had it here. Well, maybe back in the shirt waste factory in New York in the 1800s. in the last century or so, we've not had that kind of manufacturing here. But the fabric that's used for that shirt is completely made by a machine. If you've ever been in a... in a textile factory, there's no people there. It's all machines and maybe an engineer walking around adjusting things or someone in a control room looking at the production from afar, right? Looking through a video camera, what's going on. But there aren't people there. And so the efficiency of manufacturing the textile means it's got to be very heavily investment in heavy investment in machinery. And so that's the kind of manufacturing that we are seeing coming back when you can automate things. So when our politicians say, we're bringing all these jobs back, which is on everyone's agenda because manufacturing represents such a high economic return. for every manufacturing job, it returns about four times the employee salary to the local areas. People with manufacturing jobs, they earn a pretty good paycheck and very middle-class, and they buy groceries on their local economy, they buy cars and houses and.

Rosemary Coates 19:12

That's right. They go to the beauty shop and they use all the local services. So it has a magnifier effect on the economy. And that's the reason why politicians often are very attractive or try hard to attract manufacturing to their areas. But to say all these jobs are coming back from overseas is just not true. We're just not, know, if you've ever been to a factory in Asia, and I've been to many of them in China, all across Asia, actually, you know, there are teenage girls.

Rosemary Coates 19:53

But you know, these are they have teenage girls sitting on plastic stools for 10 hours a day, six days a week that are assembling iPhones or sitting at sewing machines or assembling athletic shoes. That kind of manufacturing is not in the US. I mean, I can't imagine. have two teenager, two teenage granddaughters and. I'm telling you, they would never sit on a plastic stool for 10 hours a day manufacturing athletic shoes. mean, just it's not the kind of manufacturing or the culture, the work culture we have in America. So to say all those jobs are coming back is just wrongheaded. What's coming back is more sophisticated jobs, more engineering jobs, more skilled machinists, people that instead of putting pegs and holes,

Rosemary Coates 20:48

are running robots that put pegs and holes and they know how to operate a robot and how to repair a robot and you know those are the kind of very skillful jobs that pay a better living wage that are very attractive in the redevelopment of the industrial base in America.

Rosemary Coates 21:24

Yeah. Yeah, well, I'm glad you mentioned power, because that's one of the pinch points for sure. Our electrical grid is aging and broken in a lot of places. Even if we did have an influx of lot of manufacturing, we don't have the power grid to support it. I talked to an investment banker in the power industry, or in the Yeah, he deals with power. That's where he makes his investments, electricity and infrastructure. So this guy called me was from New York and he called me and he said, you know, I've been reading what you're saying about reshoring. He said, but you know, if you build all these factories, there's no electricity. So, you know, you can't operate a factory without electricity. And he said, you know, we're we're working on investments in the electrical sector to rebuild the grid and to do a self-sufficient electrical systems and that sort of thing. said, but it'll be, you know, five to 15 years before that's really built out. And he said, in the meantime, you know, just, can't, we can't do it. So you've got a lot of hurdles to cross if you're considering manufacturing in the U S certainly the electrical grid, certainly the cost of labor. Those skills. So I like to say we don't have a job shortage. We've got a skill shortage, you know. So the people that are available to work don't have the right skills for the modern factory. Go ahead.

Rosemary Coates 23:41

Well, yeah, I mean, if you go to a manufacturing site today, it's full of computers. you know, people that are working on the factory floor are moving product along and inventory systems along through that computer system. They're doing quality checks using computers. It's, you know, it's very, very computer heavy. I mean, even writing emails and so forth. You know, my grandfather worked at Hossie Taylor in Warren, Ohio. They make drinking fountains. And he was a metal worker. And so he'd come home from work and he was dirty and smelly. you know, he'd want to give me a hug. And I'm like, no, gross. Yeah.

Rosemary Coates 24:25

But that's not what manufacturing looks like today. I mean, I live in Silicon Valley and, you know, the manufacturing that's around here, you have to get in a bunny suit and you have to, you know, have a respirator on and, you know, because it's a computerized factory or one where you're controlling the environment carefully. you know, he, my grandfather wouldn't survive in the environment today in manufacturing. didn't have the skills that you need today. So those skills are very different. You need to know how to operate a computer. You need to know how to fix a robot. You need to know how to operate and program a machine tool. I mean, these are advanced skills that weren't required 50 years ago.

Rosemary Coates 26:27

Yeah, so that's a I'm glad you brought that up because it's you have to look at this as a worldwide economy also. I mean, there's no way we could sustain all of manufacturing or all of the supply chain just in the US. So high tech defense, obviously, with the war, going to have to replenish our stockpiles because they've been exhausted on the in the war in Iran. And you know, we have to rebuild that stuff. So, yeah, I think we're going to see growth in the defense industries going forward. And defense is often very on the leading edge of high tech. But that doesn't mean that, you know, we can do all the manufacturing here or all the component parts here. We have put into place, you know, over the last few years, some of the acts like the Chips and Science Act, requires a significant amount of US content in products that are built. So US steel, for example, US component parts and so forth. But the thing is, there's a lot of components that are not actually made here. So take semiconductors, for example. By far, the largest semiconductor manufacturer is TSMC, Taiwan Semiconductor Manufacturing Company. And they make 80 % of the world's chips and especially the advanced chips. And we can't compete, we don't have that here. Now we're building plants. There are new semiconductor plants being built in Arizona, New Mexico, Idaho, Texas, Ohio, upstate.

Rosemary Coates 28:25

Yeah. But, you know, it'll be five to 10 years before those semiconductor plants are online. So right now, we have to source those products overseas. And a lot of the component parts when you're building semiconductors come from places like Ukraine. So Ukraine makes. About 40 % of the world's helium gas, which is required for semiconductor production. Titanium, which is in defense products all over the place. Most of that comes from Russia and China. Other rare earth elements are, you know, rare earth elements are everywhere. They're in your backyard even. but in big quantities there in just certain locations. And we have some of those in the US, we have some mines in the US, but we don't have the refinement of them. those rare earths have to be refined before they can be used. And about 85 % of that happens in China along the Mongolian border, because it's an industry that pollutes a lot, the refinement of those rare earths. And they're required for electronics development. So if you look at the defense industry, yes, we're putting policy in effect and funding in effect to help redevelop the defense industry in America and putting companies there. But they're sourcing all the component parts and everything that goes into a defense product comes from all over the world. So, you know, it's more complicated than it looks like on the surface.

Rosemary Coates 30:26

Yeah.

Rosemary Coates 30:58

Yeah, you hit a sore point. A lot of people, yeah, mean, you know, the Infrastructure Act, the Chips and Science Act, these were big funding opportunities for many companies. But a lot of that funding was rolled back under the first year of the Trump administration. So funding that was there originally and companies

Rosemary Coates 31:28

I hope so. mean, I think there's some review of that and hopefully refunding some of those projects. But yeah, I mean, it's been, this is what I was talking about at the beginning. There's a lot of uncertainty out there. And so to say, well, I'm gonna go build a $10 billion semiconductor plant based on. partial funding from the government or you know the economic making the economics work and then that funding is withdrawn you're going to see a lot of those projects stall.

Rosemary Coates 32:11

Yeah, and eventually it will. And I think there's a lot of pent up demand and you can see the the worldwide manufacturing and sourcing environment is shifting. And, you know, there's there's decisions being made that are more complicated. and, you know, we just hadn't seen for 25 years. I mean, when I started doing consulting work in Asia, you know, I had a lot of clients, you know, I have a CEO, tell me just give me to China. We know it's cheaper. That's right. And I got really good at it. You know, I helped a lot of companies off shore to China. Today's decision is

Rosemary Coates 32:59

Yeah, I mean, it started getting to me and that's part of the reason why we did a 180 and started helping companies reshore and think about manufacturing here. But today's decision is way more complicated. It's not just get me to China. I today's decision is where in the world should we manufacture and why?

Rosemary Coates 33:26

You know, what makes economic sense? Where can we get funding? Where is our customer base? Where is the future growth? How do we mitigate risk? I mean, all these things go into the decision factor today.

Rosemary Coates 33:44

Yes, yes.

Rosemary Coates 35:18

Well, you know, I can tell you that about 80 % of our clients are trying to get out of China. So that's an important part of the work that we do. And, you know, because I've done this, I've been helping companies in China for 15, 20 years. I can tell you it's not easy.

Rosemary Coates 35:43

So, you know, like you said, it's not like you can turn off the lights and lock the door and get on a plane and leave. There's a whole process you have to go through. one of the things where, you know, I've had to have these tough conversations with the CFO saying, you know, most employees in China are on employment contracts of one year or two years. And if you shut the plant down, you have to pay out those contracts to the end. And they're like, what? It's not just give two weeks notice and you pay them two weeks. You have to pay for two years if they're on a two year contract. there's that.

Rosemary Coates 36:28

Yeah, right. The employment laws are very different in China, yes. So that's one thing. Another thing is you have to apply for a permit to leave. So, you know, just as in the US, we have employment laws that protect employees. The Chinese government says you have to apply for a permit. And if you're in an industry that they feel is important to them or critical to them.

Rosemary Coates 36:53

they're going to slow walk that. It might take you a year or two to get that permit, right? And then, you've got, you know, as, as manufacturing moved to China, the entire supply chain moved to China. So you bring the top level assembly back. You also have to deal with rebuilding that entire supply chain. And that we usually tell our clients is 18 months worth of work, hard work.

Rosemary Coates 37:21

to redevelop the supply chain here. As a lot of the companies, know, shut down in the US, moved to China, and they are no longer producing parts in the US. So you have to redevelop them, convince them to come back, convince them to produce the parts. Then, you know, the kind of manufacturing that's coming back is an opportunity to re-engineer the process, to automate, to look differently at, you know, how you're producing products. products and that takes some time and expertise as well.

Rosemary Coates 38:13

Well... Yeah, I mean, if you have supplied machine tools to your factory in China, you've given them blueprints of how to make your product, you've exposed all the suppliers. mean, they know how to make your product. They know how to get the raw materials. They know what the quality standards are. They're not going to just forget how to do that. They're going to continue to produce your products under a different label.

Rosemary Coates 38:47

sell them on the world markets, you're going to find yourself competing with yourself because of that situation. That's certainly another IP risk as you leave a location like that. So yeah, I mean, there's a lot of complexity to it. I would recommend anybody that's leaving China, work with a consultant that knows what you're doing and to help you through that process to manage it. And yeah, I mean, you can be held hostage. And we know, you know, one company that was making medical consumables, and he determined that would be cheaper to make them in India. And so he decided to shut down the factory in China, and he didn't announce it in advance, but the employees got wind of what was happening. They were packing up equipment and so forth. And they... they held him hostage in his office for two weeks. you know, I mean, they fed him and, you know, wasn't like, you know, was torture or anything, but they wouldn't let him go until he agreed to pay out their employment contracts. The other thing is, you know, that those machine tools that you've sent to China, China often won't allow you to export used products. so even though you think you may think you own them, you probably don't. So, or probably can't get them back. So, you know, that's another big issue.

Rosemary Coates 40:59

Well, you know, a lot of companies, think most boards are talking about reshoring in some way or another or rethinking their global manufacturing strategy. So, you know, it's on the agenda now, which is good, at least people talking about it. I would say, you know, the process is going to take you a year or two to actually complete that process. So there's no substitute for a good project management. thinking through all the moving parts, you know, having somebody in control and, you know, a focused effort to bring manufacturing back, asking for help when you need it, whether it's from an attorney that's going to help you with contracts or to get out of contracts, you know, reestablishing a position and a location in the US. There's a, you know, a lot of activity with respect to site locations. We've done a few of those for our clients too, finding them the right location in the US.

Rosemary Coates 42:41

Thank you, it's my pleasure. Yeah, I would encourage everybody to visit our website. It's reshoringinstitute.org. And like I said, we're a nonprofit and nonpartisan organization. We'd be happy to help.

Rosemary Coates 42:56

Okay, bye bye.