In 2020, reshoring is expected to have created more US jobs than FDI for the first time in seven years, according to data collected by the Reshoring Initiative.
The organisation forecasts in its November 2020 report that US firms reshored nearly 69,000 manufacturing positions, while greenfield investment in the same industries created fewer than 42,000 roles.
After moving in tandem for much of the past decade, reshored jobs were up nearly 45% in 2020, and FDI jobs were down 40%. The report, which is based on job announcements and annualised data from the first half of 2020, supports early predictions that the pandemic is accelerating the trend of companies bringing overseas operations and supply chains back home.
“A significant cause of the pick-up in reshoring is Covid-19,” said the Reshoring Initiative’s founder and president Harry Moser, noting that the pandemic was a motivating factor in 60% of cases since March 2020. A June survey of 750 North American manufacturing firms found 69% were ‘likely’ or ‘extremely likely’ to reshore overseas operations.
Meanwhile, Covid-19 caused global greenfield investment to dive 37% over the first eight months of the year. Data from fDi Markets suggests the US fared relatively well, with inbound projects on track to drop just 14%.
Winners and losers
In the 1980s, US firms began offshoring manufacturing work to China and elsewhere in Asia. But, over the past decade, a growing number have brought operations back and switched imports for local products, creating more than 480,000 domestic jobs. Key drivers include rising wages in once low-cost markets and a more holistic understanding of the costs of offshoring — including duties, packaging and delays.
“US companies have recognised the problems created by supply chain gaps and dependencies — the government is motivating them to reshore and the public is looking to buy US-made products,” said Mr Moser.
“For many, the response is to produce more at home.”
Testament to US firms’ response to the pandemic, medical equipment reshoring cases in the first six months of 2020 were double the full-year 2019 figure. Historically, however, the most active industries have been transportation equipment, machinery, electronic products and appliances.
One household name doing this is Black & Decker, which has progressively moved production of its Craftsman Tools line out of China since buying the brand from Sears in 2017.
China is the biggest loser from the US’s reshoring momentum, being at the receiving end of more than 40% of cases since 2010. It is followed by Mexico (23%) and Canada (10%) which, Mr Moser believes, the US should work with to encourage nearshoring and reap the benefits of the US–Mexico–Canada Agreement.
“Right now the US tends to think of Mexico as a competitor and I think we should think of them as an ally to bring more work back from China,” he said. The report states that US imports from Mexico have 40% US content compared to 5% from China.
Texas and the Midwest are the biggest winners, having attracted the most reshored jobs since 2010.
Taxes versus tariffs
Like his predecessors, outgoing president Donald Trump vowed to revive the US’s ailing manufacturing sector, including by bringing offshored business back home. But his policies proved a mixed blessing.
“Cutting corporate taxes and regulations, and his business-friendly image encouraged reshoring. But his trade wars and unpredictable behaviour hurt,” said Mr Moser. “Companies want predictability, but tariffs were changing so often they just stopped making decisions.”
It follows that reshoring peaked in 2017 after the corporate tax rate was slashed from 35% to 21%, and then plunged the following two years as tensions with China intensified.
Reshoring is tipped to continue under president-elect Joe Biden, whose campaign and transition plans are peppered with ‘American-made’ promises. He is expected to stabilise tariffs and his policies include a 10% tax credit for investments that create domestic manufacturing jobs.