Reshoring has declined a bit as a hot topic, but it may pick up again given the trade uncertainties between China and the United States and the Trump administration’s attempts to lure companies back home. A.T. Kearney’s sixth annual Reshoring Index reveals that reshoring has yet to materialize on an aggregate level. U.S. gross manufacturing output grew 6% year-over-year in 2018; however, growth in manufactured goods imported into the United States from the 14 largest low-cost country trading partners in Asia rose by $66 billion, or 9%, that same year.
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Dramatic changes to U.S. trade policy designed to bring back manufacturing rose to the forefront in 2018, noted the A.T. Kearney report. Chief among these changes were the three rounds of like-for-like tariffs exchanged between the United States and China. The A.T. Kearney Reshoring Index indicates that, despite these new trade and tax policies, reshoring has not seen an uptick. This is largely because the fundamental economic advantage of manufacturing in low-cost countries remains unchanged. “What has changed, however, is where imports are coming from within the group of traditional low-cost trading partners,” said the report.
“Rather than incentivizing companies to reshore, the trade war with China has simply accelerated an already ongoing shift toward manufacturing in lower-cost countries such as Vietnam,” said Patrick Van den Bossche, A.T. Kearney Partner and co-author of the study. Vietnam and Mexico were among the low-cost countries benefitting from China’s losses, with Vietnam capturing approximately half of the $72 billion in import value, or $36 billion lost by China. Imports from Mexico grew by $28 billion in 2018, 10% more than in 2017, the fastest growth that Mexico has seen in the past seven years.
The A.T. Kearney China Diversification Index (CDI) was introduced in this year’s study to quantify this shift. The CDI indicates that China’s role as “the factory of the world is changing faster than anticipated,” stated Brooks Levering, A.T. Kearney Partner and co-author of the study.
In May, the Reshoring Initiative led by reshoring advocate Harry Moser released its 2018 Reshoring Report. “In 2018 the number of companies reporting new reshoring and foreign direct investment (FDI) was at the highest level in history, up 38% from 2017,” said the report. “The combined reshoring and related FDI announcements totaled over 145,000 jobs reported by 1,389 companies, the second highest annual rate in history. Including upward revisions of 36,000 jobs in prior years, the total number of manufacturing jobs brought to the United States from offshore is over 757,000 since the manufacturing employment low of 2010.
The Reshoring Initiative largely attributes the increases to greater U.S. competitiveness through corporate tax and regulatory cuts. Similar to the previous few years, FDI continued to exceed reshoring in terms of total jobs added, but reshoring has closed most of the gap since 2015.
The Reshoring Initiative’s 2018 Reshoring Report contains data on U.S. reshoring and FDI by companies that have shifted production or sourcing from offshore to the United States. The report includes cumulative data from 2010 through 2018, as well as projections for 2019. The numbers demonstrate that reshoring and FDI are major contributing factors to the country’s rebounding manufacturing sector.
A closer look into the Reshoring Initiative report shows that companies leaving China account for 59% of all reshoring. Quality, freight cost and total cost are the top drivers of the reshoring trend. Proximity to market, government incentives, supply-chain optimization, higher productivity, a skilled workforce and brand image for products made in USA serve as the top domestic drivers. “Reshoring has been increasing at a similar rate as FDI, indicating that U.S.-headquartered companies are starting to understand the U.S. production benefit that foreign companies have seen for the last few years,” noted the report’s summary.
A.T. Kearney concludes its 2018 study with potential scenarios involving global trade policy as well as domestic investment into U.S. manufacturing competitiveness, and how these scenarios would impact American manufacturing going forward. “We have seen how trade wars act as a double-edged sword, hurting both the domestic economy as well as the economy of trading partners,” said Johan Gott, A.T. Kearney Principal and co-author of the study. “On the other hand, efforts made to expand U.S. competitiveness, such as investments in workforce development, infrastructure and research, drive pure benefit to American manufacturing.”
Harry Moser, founder and President of the Reshoring Initiative, commented, “We publish this data annually to show companies that their peers are successfully reshoring and that they should reevaluate their sourcing and siting decisions. With five million manufacturing jobs still offshore, as measured by our $800 billion a year goods trade deficit, there is potential to make the United States competitive again.”
