Reshoring in Reverse
In a sharp reversal of the glimmers of hope seen just two years ago, A.T. Kearney’s latest Reshoring Index shows U.S. imports are at an all-time high.
U.S. manufacturers are not exactly coming back in droves. In fact, A.T. Kearney’s Reshoring Index shows that imports of manufactured goods from the 14 largest low-cost country trading partners in Asia grew 8 percent last year – reaching a record-high value of $55 billion and the largest one-year increase since the economic recovery of 2011.
Despite strong growth in U.S. gross output of manufactured goods, imports from the 14 typical offshoring countries have grown much faster. In fact, imports have outpaced manufacturing gross output in four of the past five years and eight of the past 10 years – showing a clear direction away from reshoring.
The $1.5 trillion tax cut that President Donald Trump signed into law, if anything, is likely to exacerbate this. The combination of an overstimulated economy and low unemployment will likely result in even more imports when domestic manufacturing can’t keep up with growing consumer demand.
So why the reshoring struggle? We see three major reasons:
- Labor-intensive manufacturing is still more economical to produce in low-cost countries unless processes can be automated. And even then, reshoring often requires hefty capital investments which, up until recently, most companies have been reluctant to make.
- The growth in imports is not so much from more manufacturing moving offshore as it is from manufacturers that already have existing offshore manufacturing shipping more volume to the U.S.
- Although U.S. manufacturers have increased automation to try to address labor costs, there is still a shortage of skilled labor to staff manufacturing operations.
The Reshoring Index has placed A.T. Kearney at the center of the reshoring debate – often presenting a perspective that is contrary to the mainstream chorus. However, the Index has become a powerful resource because it is grounded in actual trade data and macroeconomic metrics, not speculations or opinions.
For more information, read the full report here: Reshoring in Reverse Again
About the author:
Patrick Van den Bossche is a partner based in A.T. Kearney's Washington, D.C., office. Patrick has extensive business and operations experience working with executive teams at companies of all sizes to help them work through an array of challenges and opportunities. He is an expert in global supply chain strategies, complexity management, manufacturing, and distribution.