The spending proposal is just one sign of an ongoing shift in supply chains that’s likely to bring more manufacturing back to the U.S.
Globalization defined international commerce for most of the last 40 years, but it’s clearly retrenching now. Part of that is politics. Nationalist leaders like President Donald Trump and movements like Brexit—as well as a pushback against growing influence by China—changed the rhetoric around global trade.
But it’s also clear that events like the pandemic have shown the limits of far-flung supply chains. Pharmaceutical companies ran short on materials at the height of the pandemic. Now car makers don’t have enough chips to expand production. And events like the blockage of the Suez Canal by a wayward ship earlier this year have shown how isolated accidents can grind commerce to a halt.
In the first quarter of 2021, reshoring announcements by U.S. companies were five times higher than before the pandemic and twice as high as at the height of the trade war, according to UBS. Usually, it takes about a year and a half after an announcement for a company to actually move production to the U.S., according to UBS. That means the U.S. could see an enormous wave of new domestic manufacturing capacity before the end of 2022.
UBS analyst Chris Snyder expects healthcare and pharmaceuticals to lead the shift, and the auto industry to reshore aggressively too.
The Biden administration is also planning to put out a report reviewing critical supply chains in June, which “will set the scene for onshoring of pharmaceutical supply chains, semiconductors and large scale batteries as well as ensuring access to strategic minerals,” according to trade research and analytics company Panjiva.
But all that reshoring may not mean that manufacturers will be adding the equivalent number of jobs. Snyder expects the biggest beneficiaries of the shift will be companies focused on automation and digitization. That includes TE Connectivity (ticker: TEL), Amphenol (APH), and Keysight Technologies (KEYS).
“The increased focus on supply chain resiliency comes just as factory automation is seeing an inflection in digital capabilities,” Snyder wrote. “We view digitalization to be the growth & value driver behind advancements in sensor technology (data gathering), cloud computing (data storage), connectivity (5G) and supercomputers (real-time data processing).”
Several industrial companies could also profit off the trend. BofA Securities analyst Andrew Obin thinks some of the biggest beneficiaries include Parker-Hannifin (PH), Rockwell Automation (ROK), Eaton (ETN), Fortive (FTV), Emerson Electric (EMR), and PTC (PTC).
Write to Avi Salzman at avi.salzman@barrons.com
