Recently, however, we have seen a change both in business attitudes and government policy.
Many companies have realized that offshoring creates risks that often outweigh the incremental efficiencies. Long supply lines flow at the whim of local politics, labor unrest and corruption. In some countries, like China, there have been governmentwide efforts to steal intellectual property for the benefit of domestic companies that become the main competitors for the victims of the theft.
At the same time, the trend in trade policy was also shifting rapidly. Businesses have seen that President Trump did not support their blind pursuit of efficiency in the global economy — manifest in the policy of theological free trade unconstrained by competing societal imperatives. Instead, his focus was on jobs, particularly in manufacturing, because he recognized the importance of productive work not only to our G.D.P., but also to the health and happiness of our citizens. Business success and economic efficiency, of course, remained important considerations. But they were no longer the be-all and end-all of trade policy.
The new policy consisted of aggressive enforcement of prior trade commitments, renegotiating job-destroying trade deals like NAFTA and the United States-Korea Free Trade Agreement, and taking on China’s predatory trade and economic policies.
Many businesses protested that this policy shift created uncertainty. President Trump’s response was simple: If you want certainty, bring your plants back to America. If you want the benefits of being a U.S. company, and the protection of the U.S. legal system, then bring back the jobs.
As a result of these developments, the offshoring frenzy started to abate. Since the administration first imposed duties on Chinese imports in July 2018, American companies including Apple, Whirlpool and Stanley Black & Decker have either scrapped offshoring plans or announced decisions to move production to the United States. Automotive companies have announced $34 billion in new U.S. investment as a result of the new United States-Mexico-Canada Agreement.
The Kearney Reshoring Index, which measures companies’ global production strategies, shifted significantly in 2019: Reversing a five-year trend, imports of manufactured goods from low-wage Asian countries fell while U.S. domestic manufacturing output remained strong.
Our experience of the past two months will only accelerate this reversal. As companies prepare to reopen their U.S. operations, many have found themselves held hostage to decisions made by foreign governments about whether their suppliers are “essential” or not. Every day I talk to business leaders who now acknowledge they underestimated the risk in decisions to move jobs overseas or to rely on the production of small but crucial parts in some far-off and often unstable country.
