The Reshoring Initiative released its annual report revealing strength and longevity in the reshoring and foreign direct investment (FDI) trends. The strong movement is motivated by the risks associated with global politics and climate change and by supportive U.S. industrial policies. Reshoring plus FDI manufacturing job announcements in 2023 continued to climb, adding 287,000 jobs, the second-highest year on record (see Figure 1).
Bringing it home
Global events of the past several years – the pandemic, geopolitical risks and new industrial policies – have triggered a reindustrialization of America. U.S. policies and geopolitical developments will continue to shape the outlook for investments that shorten supply chains, enhance domestic supply chain resilience, and fortify national and economic security.
Geopolitical risk and climate change have aligned corporate strategy and U.S. industrial policy, leading to a notable increase in U.S. manufacturing investments. The cumulative number of jobs brought back since 2010 is nearing 2 million (see Figure 2), which is about 40 percent of what was lost to offshoring.
Essential industries supported by U.S. industrial policies like the Inflation Reduction Act, the CHIPS and Science Act, and other government subsidies have shown substantial growth. Uppermost products include electric vehicle batteries, semiconductor chips and solar energy. These industries drove about 39 percent of the announced jobs in 2023.
As government subsidies run out, new reshoring and FDI announcements are slowing. Future progress will depend on new policies that make U.S. manufacturing cost competitive rather than subsidize specific industries. A comprehensive U.S. industrial policy is the best mechanism to make domestic manufacturing sustainable in the long run. Measures such as substantial workforce investment and improved competitiveness across various goods would minimize the need for subsidies.
Most of the top factors for reshoring relate directly to supply chain optimization, which is focused on reducing costly risks from geopolitical and climate change events. Incidents such as the Covid-19 shutdowns, war in Ukraine, Israeli/Hamas conflict, increasing tension over Taiwan and possibility of decoupling with China highlight the urgent need for companies to consider reshoring and nearshoring as safeguards against catastrophic disruptions.
Calculating risk
Companies can utilize the Reshoring Initiative’s free tools to compare alternative and local
sourcing options. The Total Cost of Ownership (TCO) Estimator quantifies all relevant costs and risks. The Geopolitical Risk measure helps a company decide whether any higher U.S. TCO is worth paying to assure component availability. Geopolitical risk is defined as the likelihood that, within one year, a significant disruption in trade will occur, causing the United States to stop importing goods from a particular country due to a negative geopolitical event.
The success or failure of recruiting and training millions of workers will determine the outcome of the current reindustrialization momentum in either direction. Skilled workforce availability is the No. 1 criterion for site selection and, especially, for reshoring site selection. Clearly, the U.S. skilled workforce lacks the quantity and quality needed for faster reshoring and is at a disadvantage relative to many other countries. Nevertheless, about 49 percent of cases mention skilled workforce availability as a reason they reshored, essentially tied for No. 2 with proximity to customers.
The annual number of citings of workforce being a reason for reshoring has risen four times since 2013, but so has the overall number of cases. In some industries, such as apparel, the lack of workforce makes reshoring extremely difficult. This factor is expected to become even more important as companies work to fulfill their massive commitments to domestic production.
The Reshoring Initiative advocates to make even more work reshorable by policies like massive increases in skilled workforce recruitment and training and a lower U.S. dollar. Are you thinking about reshoring? For help, contact me at 847-867-1144 or harry.moser@reshorenow.org.
