American companies are starting to bring manufacturing back to the United States. Although it’s by no means a stampede back home, the rate of return, or the “reshoring” of U.S. firms, is increasing.
The Trump Effect
Regardless of one’s political preferences, President Donald Trump’s corporate-friendly tax relief and deregulation deserve some credit for enticing companies back to American shores.Not Just About Cost
For one, China is a long way away from the U.S. and European markets. And as China’s economy grew, costs rose. But for many years, it still made sense for most companies to anchor factories there. But increasingly, concern about supply chain and manufacturing disruptions are more the rule than the exception.Moral and Environmental Concerns
There’s also the issue of social liability. At the Golden Globe awards in January, comedian Ricky Gervais pointed out the moral hypocrisy of Apple CEO Tim Cook for exploiting sweatshop labor in China while making billions of dollars off the backs of that labor. But it was more than just a barbed joke. U.S. corporations can face swift financial retribution across the new media world—that they themselves created—from a “woke” customer base for such trespasses of injustice.Automation Makes It Possible
In addition to a more business-friendly climate in the United States—and perhaps because of it—the concept of “local-to-local,” where products are made in or close to their main market, is gaining traction among many U.S. companies. Thus, the reshoring of their production facilities back to the States.Under Armour, for example, is part of this local-to-local trend, with plans for a new factory to be located in the Baltimore area.
Is Single-Sourcing Over?
The U.S.–China trade war revealed more than just inequities in trading agreements between the two countries. As important as that was, it also showed the folly of relying on a geopolitical adversary for 80 percent of strategically critical materials, such as rare-earth elements, which are used in aircraft and missile guidance systems, cell phones, and electric cars. As a result, new rare-earth mining operations are now opening up in Wyoming.But it’s more than just rare-earth elements for which the United States depends almost solely on China. The United States has single-sourced critical pharmaceutical drugs, such as antibiotics, and common over-the-counter drugs, such as ibuprofen and aspirin, to China, as well as high-quality medical technologies and supplies.
Walmart Comes Back, Too
Ironically, the rush to outsource to China was led by Walmart, the largest retailer in the world. Leveraging its market power and low Chinese wage rates, the Arkansas-based superstore has been accused of single-handedly destroying the mom-and-pop stores across the United States by driving them out of business with pricing with which no one could compete.Regional Localism
How big or sustainable is the reshoring trend that we’re seeing?It really depends on which companies you talk to. Some firms plan to move some but not all of their production back to the United States, while relocating their China factories to nearby countries such as Vietnam and Malaysia. Other companies plan to open new factories in China after the COVID-19 epidemic is over with. That timing, however, remains unknown.
But of course, plans change as circumstances on the ground change. Political stability is also a big factor in companies’ decision-making processes. Rising unrest as the epidemic widens in China may be another factor to consider.
A reasonable assessment of the reshoring trend may include the global trend of regional localism. That’s where factories are not necessarily repatriated, but rather, are relocated in or near major markets, wherever possible.