By Rosemary Coates
Executive Director of the Reshoring Institute
Reshoring is no longer just a nice idea, it is really happening. According to Reuters, more than 80% of manufacturers are considering reshoring some or all of their production. Reshoring is a hot topic in Board rooms all across America.
Companies started considering reshoring way back in 2012 during the Obama-Romney Presidential campaign when both candidates were China-bashing. This was the ignition point for conversations about the possibility of bringing production back to America. Over the next few years, there was small but steady growth in US manufacturing, as some companies were able to make an economic case for reshoring. But the severe supply chain disruptions during the Covid pandemic exposed risk as an important component in the decision on where to manufacture.
More decision variables
Instead of a purely economic decision based on the total cost of ownership (TCO), decision makers started to factor in the risks of long global supply chains, order fulfillment times, and geopolitical risk. The process to determine where in the world to manufacture became more complex with more variables to consider. Companies now are taking steps to source more component parts and raw materials domestically to eventually support full manufacturing in America.
Reshoring manufacturing is steadily increasing - but reshoring cannot simply be defined as reestablishing new factories in the US that were once in China. Reshoring is defined more broadly to include:
Manufacturing returned to America
New sourcing of raw materials and parts in the US
Expanding operations in America vs. going overseas
Foreign direct investment in US manufacturing
Buying more component parts in the US
One startling number was recently published by Thomasnet. Thomasnet surveyed over 500 industrial buyers - 83% of these buyers said they intended to find and place 10 - 12% more orders with domestic suppliers next year. Based on Thomasnet's collected buying data from past years as compared with projections for next year, this simple change – buying 10% - 12% more US made products - could inject $443 Billion into the US economy. WOW!
If these numbers are anywhere near correct, we are in for a wild ride. Although these numbers are a projection based on a survey, they are likely to be directionally correct. Since we define the placement of new orders in the US as part of reshoring, this number made us sit up and take notice. The trend is indeed positive.
China is no longer the low-cost labor country
The Reshoring Institute recently published a study on global labor rates. The Reshoring Institute team investigated how manufacturing wages have risen in China and what this means for companies going forward. Wages and salaries of production workers, machine operators, manufacturing supervisors, and managers were compared. The research concluded that China can no longer be considered a low-cost country, as its labor rates have significantly increased.
The lowest-cost countries in the study are now India, Mexico, and Vietnam. While there are even lower-cost areas of the world such as Myanmar, Bangladesh, and Africa, the Reshoring Institute focused its study on where most manufacturers are moving now, after leaving China.
New laws and incentives
With new funding and tax incentives now available through the Chips and Science Act, the Inflation Reduction Act, and the Build Back Better Infrastructure Act, reshoring and expanding operations in America have rapidly become popular and economic choices for American manufacturers. Improved roads, ports, bridges, rail lines, and airports all contribute to the efficiency and viability of manufacturing. New investments in automation, mining, green energy, and STEM education hold the promise of the future of competitive manufacturing in America.
There is also a magnifier effect when new jobs are added in the manufacturing sector. Based on the Bureau of Economic Analysis (BEA) annual input-output tables have calculated that a dollar's worth of final demand for manufacturers generates $1.48 in other services and production. Other economists put the number higher – as much as $2.00 for every $1.00 spent on manufacturing.
What industries are reshoring?
We have seen interest in reshoring by many industries, but a few are the most prominent. Semiconductors are coming roaring back, supported by funding and special treatment under the CHIPS and Sciences Act passed in 2022. New production facilities are being built in New York, Ohio, Texas, and Arizona. Pharmaceutical production is also seeing a return, especially after major risks in pharma supply chains were exposed by the pandemic. Plastics manufacturing is also experiencing a return to American manufacturing, particularly products that require a rapid customer response. Executives across many industries are exploring the possibilities.
Waterlogic, a manufacturer of water purification equipment headquartered in the UK worked with the Reshoring Institute to establish a new manufacturing site near the Dallas Fort Worth airport. Big Ass Fans brought back production of consumer fans due to quality issues with manufacturing in China. GE started repatriating appliance production several years ago and reopened Appliance Park in Louisville, a large-footprint manufacturing site. And there are many more examples of manufacturers both big and small that are reshoring.
Backbone of a robust economy
Manufacturing is the backbone of a robust economy. In the 1960s, manufacturing accounted for about 25% of the US GDP. In recent years it's dwindled to less than 12% and employs only 9% of the workforce. There is a lot of room for growth in American manufacturing if we can make the economic case for bringing manufacturing back. We must focus on automation, advanced manufacturing techniques, and reduction of labor to reduce overall costs and increase productivity.
China's robust growth over the past 25 years can be attributed to a manufacturing economy that is nearly 40% of China’s GDB. China makes and sells more manufactured goods than any other country on the planet. It is time we focus on rebuilding manufacturing in America.
The reasons for returning manufacturing to the US
The pandemic is the primary driver for the uptick in the return of American sourcing and manufacturing. Previous efforts including the tax reduction act of 2017 and the global trade war with China, contributed but created only lukewarm results. The pandemic, on the other hand, introduced supply chain risk and exposed America's vulnerability in supply chains for industrial and consumer products.
American manufacturing is poised for rapid rebirth and astonishing results. We are very optimistic that Reshoring will continue to expand in America.
(For more information on the global labor rates study, a copy of this report, and other research by the Reshoring Institute, visit our website at www.ReshoringInstitiute.org or email us at info@ReshoringInstitute.org)
About the Author
Ms. Coates is the Executive Director of the Reshoring Institute and the President of Blue Silk Consulting, a Global Supply Chain consulting firm. She is a best-selling author of: 42 Rules for Sourcing and Manufacturing in China and Legal Blacksmith – How to Avoid and Defend Supply Chain Disputes. Ms. Coates lives in Silicon Valley and has worked with over 80 clients worldwide. She is also an Expert Witness for legal cases involving global supply chain matters. She is passionate about Reshoring.