Is reshoring real? Two reports draw different conclusions

July 13, 2019

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.

Reshoring stock art

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.

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