Reshoring shifts into reverse . . . again

July 27, 2018

Global businessReshoring of manufacturing is one of those topics that seems to come and go. What with all the media buzz about “made in America” and “making America great again” through strong manufacturing, fair trade and more jobs, it could be that the focus on reshoring has been lost. It certainly remains a topic of interest to manufacturers and politicians alike, within the larger context of tax reform, tariffs and the portent of a trade war. 

Is reshoring of manufacturing back to America a reality, or is it business as usual for most global companies? A.T. Kearney’s fourth annual Reshoring Index offers some perspective: It shows record imports from traditional offshoring countries in 2017 – “a sharp reversal of the glimmers of hope” seen in 2016, according to the report. Imports of manufactured goods into the United States from the 14 largest low-cost trading partners in Asia rose by a staggering $55 billion, or 8%. It’s the largest one-year increase since the economic recovery of 2011, notes A.T. Kearney’s report.

After rising to a five-year high in 2016 in the wake of a U.S. presidential election year in which so much attention was paid to manufacturing job losses to China, the Reshoring Index has again dropped 27 basis points. The 2017 Reshoring Index shows that reshoring continues to be a drop in the bucket, and U.S. manufacturers are not exactly coming back in droves. Despite strong growth in U.S. gross output of manufactured goods, imports from the 14 traditional off-shoring countries grew much faster. So, relatively speaking, the proportion of reshoring has become even smaller. 

Relative growth of imports from low-cost trading partners has now outpaced relative growth of U.S. manufacturing gross output in four of the past five years and eight of the past 10 years, showing a clear direction away from significant reshoring. 

A.T. Kearney’s report cites several reasons for this trend, including the continued economic benefits of producing labor-intensive products overseas, particularly in the electronics industry that has an established “eco-system” of trained people, and supply chains that are “not easily transferred to the U.S.,” Patrick Van den Bossche, one of the authors of A.T. Kearney’s report, told PlasticsToday.  

“There’s also the fact that significant offshore investments were made in China, for example, that are not easily abandoned,” said Van den Bossche. “There are restrictions about what you can repatriate, particularly in China. Back when companies started offshoring in China they most often were required to form a joint venture with a local company or engage in other ways with a Chinese partner to become established. That means that a company can’t just pull out, taking all of its assets, intellectual property, etc., with it. There have been some highly publicized lawsuits over this.”

There’s also the issue of the domestic shortage of skilled labor for manufacturing operations, which might be a deterrent to reshoring, said Van den Bossche. “The big challenge overall is the continued lack of skilled labor. Companies struggle to find trained people, so they put training in place, form co-ops, apprenticeships and mimic Germany’s vocational programs, trying to inject the labor pool with the necessary skills to pick up the jobs. 

“If U.S. companies indeed start to come back in droves, and if on top of that the tax cuts result in further increased domestic demand this will only exacerbate the labor shortage, since there is no way on Earth that the current  U.S. manufacturing labor pool could support that situation. Making products is not like it used to be. Even with the utilization of robotics, some serious technical skills are still required.” 

The combination of an over-stimulated economy and a very low jobless rate probably will result in even more imports because domestic manufacturing can’t keep up with growing consumer demand, said the report.

Although tariffs and political posturing could impact and potentially change the direction of reshoring trends, there are many potential futures, said the A.T. Kearney report. Companies must weigh the risks and assess the longevity of tariffs on goods from low-cost countries to determine whether the United States is even the most logical location to move manufacturing capabilities, for example, if China is no longer economical. 

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