June 9, 2013 at 10:28 AM ET
Despite years of panicked headlines about manufacturing moving to Japan or China, Mitch Cahn has kept the apparel-making business he founded, Unionwear, open for 21 years on American soil.
The company's first core customers were unions that wanted to support union wages and "Made in USA" goods. Recently, a funny thing started happening: A new crop of customers began calling Unionwear headquarters in Newark, N.J.
East Coast fashion designers, including those in New York City's garment district, were shopping for U.S.-based contract manufacturers. With China's labor costs rising and its economy accelerating, small U.S. shop owners couldn't get the attention of overseas manufacturers. In an ironic twist, they couldn't afford a "Made in China" strategy.
"Now we have five to 10 callers a day about doing that kind of contract work. It's a groundswell," Cahn said. "And it's not patriotism. It's economics that's prompting them to call us."
Cahn's changing business points to the shifting global economy. With labor costs in China forecast to climb further, more small-business owners are benefiting from, or actively pursuing, domestic manufacturing rather than overseas options, sometimes called reshoring.
And small shop manufacturers aren't just dusting off shuttered businesses, locked up after jobs moved to countries such as Japan in the 1970s. Young entrepreneurs are innovating from scratch, creating new online communities such as Maker's Row -- and even turning to emerging platforms such as crowdfunding to bankroll U.S. manufacturing operations.
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Thompson Tee: Made in the USA
California entrepreneur Billy Thompson is another manufacturing innovator. In 2010, during the depths of the recession, Thompson began tinkering with layers of cooling fibers that eventually yielded sweat-proof shirts for men. Thompson Tee wants to expand—and remain on U.S. soil. But potential angel investors have requested that production move offshore.
Thompson has politely declined their money. He's instead turned to crowdfunding site Indiegogo to raise $25,000 in public donations to launch an undershirt company that will stay in America. Most men's undershirts are made overseas.
Many entrepreneurs, in fact, are mining crowdfunding to help manufacture American-made goods. A scan of the crowdfunding site Kickstarter yields start-ups making everything from apparel to bottle openers—many with prominent "Made in USA" messaging.
"I want to create jobs here in America," Thompson said. Every 2,000 T-shirts made equals one U.S. job, he estimates.
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After the deadly collapse of a garment factory building in Bangladesh, more consumers have questioned apparel made overseas, often in sweatshops and unsafe working conditions.
(Read More: How to Bring Ethics to Your Closet)
Some top European apparel labels, including H&M, have signed a safety-standards pact. But major U.S. companies such as the Gap and Walmart are pursuing independent solutions. They haven't signed the group safety accord, which binds retailers to improve safety at Bangladesh factories.
Searching for ethically-sourced goods in a global economy is tricky, which is why many feel more comfortable with the "Made in USA label." But what percentage of a good's raw materials and labor must originate from the U.S. to merit that tag?
"Right now there's no common, national definition for 'Made in the USA,'" Harold Sirkin, a senior partner at Boston Consulting Group, said.
Even if you wanted to make American-made products, sourcing domestic raw materials is challenging in part because most online manufacturing resources are in Asia. But one Brooklyn, N.Y.-based start-up is changing that trend.
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Maker's Row is an online matchmaker that connects designers with industry-specific factories and suppliers based in the U.S. Product designers and small businesses can join the website for free, while manufacturers pay $200 a month.
Maker's Row founder Matthew Burnett is a designer and Detroit native. He moved to New York City to work for major apparel labels, before launching his own watch line. His grandfather was a watchmaker so he's been around small shop manufacturing all his life.
But manufacturing his designs overseas was costly and a headache. Orders and tweaks to those orders took weeks to resolve. "You add import taxes and it becomes such a gamble manufacturing overseas as a small business," Burnett said.
He launched Maker's Row in 2012 to break down the manufacturing process for small- and medium-sized ventures. Maker's Row allows entrepreneurs, many first-timers, to plug into a U.S. supply chain including factories in all 50 states.
Participating businesses typically sell apparel and accessories. "It's harder to find a manufacturer in the U.S. than in China," Burnett said. Maker's Row plans to add other industries and is wrapping up its seed round of funding.
The site includes about 10,000 small-business owners and roughly 1,800 manufacturers, including Cahn of Unionwear.
A vibrant U.S. manufacturing sector would mean more domestic jobs. For a $1 million backpack order, for example, Cahn estimates he's able to hire 35 to 40 New Jersey workers. Fewer than 10 percent of American jobs come from manufacturing.
Can Americans Afford 'Made in the USA?'
Of course not everyone can afford American-made goods. U.S. consumer spending fell in April for the first time in almost a year, as personal income growth was flat. But attitudes are changing.
Earlier this year, Walmart announced it would boost sourcing of U.S. products. Americans aren't alone in products made on U.S. soil -- turns out Chinese consumers are also willing to pay a 10 to 60 percent premium for "Made in USA," according to BCG research released last fall.
Meanwhile, a shift in manufacturing away from China will begin to take hold around 2015, according to BCG forecasts. Rising labor prices there will create a ripple effect.
Certain industries—for which labor is a lower percentage of total product costs—are more likely to pack up overseas for North America, including Mexico, where labor costs are stable. Products likely to reshore first include appliances and electronics, transportation, machinery, plastics, furniture and chemicals, BCG's Sirkin said.
As the global economy evolves, consumers are connecting the dots between inexpensive, overseas goods and evaporating U.S. jobs.
The recession has been especially brutal on chronically out-of-work or underemployed Americans. Unemployment that counts the discouraged and underemployed, sometimes called the "real" jobless rate, is still above 10 percent in many states.
"People used to thumb their nose at manufacturing jobs," said Unionwear's Cahn. But when the recession gripped the U.S. and the manufacturing sector was among the first to stand up and create jobs, many gave the sector a another look.
"As a country we can't all be servicing each other," Cahn said. "You have to have manufacturing."
—By CNBC's Heesun Wee; Follow her on Twitter @heesunwee
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