Reshoring shifts into reverse . . . again: Page 2 of 2

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July 27, 2018

Van den Bossche indicated that the whole tariff issue is still in flux. Even as tariffs are put in place, questions remain about “how long they will last and who will blink first,” he said. “What I’m looking at is the longevity of tariffs; will someone blink and things will be back to normal, or is this likely to go on for a few years? Plus there are all sorts of unintended consequences that may require interventions similar to the aid being given to farmers for the loss of overseas markets. We can expect to see more of these [consequences].” 

If the goal is to increase U.S. output, said A.T. Kearney’s report, it does not need to come solely from reshoring. In fact, three moves can cause a spike in manufacturing: American companies bringing manufacturing back from low-cost countries (reshoring), American companies manufacturing more in the U.S. to address increases in both domestic and international demand, and foreign companies, including those from China, manufacturing in the U.S. (foreign direct investment, or FDI).

Even before there was talk of tariffs on Chinese imports, FDI from Chinese companies into the United States has been on the upswing. As U.S. demand for Chinese products grows, the more likely Chinese companies will be to set up U.S manufacturing plants. However, said A.T. Kearney, the long-term trend of manufacturing products for the U.S. market in countries such as China and other Asian low-cost countries has not been curbed. Even though 2017 and the roaring first half of 2018 are providing optimism for the U.S. manufacturing sector, it will take more than political headlines to produce meaningful and lasting change. As a result, any tariffs put on imports from these low-cost countries will only be felt, in the short run, by American consumers.

Given the global nature of trade, it is not just Chinese and U.S. companies that will be affected. “If tariffs do stay in place, companies will have to gauge whether the U.S. is the best place for them to make their products,” said Van den Bossche, noting there are countries such as Cambodia, the Philippines and other alternatives without tariffs that have seen a significant uptick in their imports into the U.S. “We can expect to see a global rebalancing if these tariffs stay in place for two to three years,” he added. 

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