Episode 81: Reshoring Revolution: How Jobs Are Returning to the USA and Changing Global Trade

Summary:In this episode, we explore the growing trends of reshoring and nearshoring, which involve bringing manufacturing operations back to a company's home country or relocating them to nearby countries. These trends are fueled by a desire for supply chain resilience, reduced reliance on foreign suppliers, and economic incentives like the Inflation Reduction Act and the US-Mexico-Canada Agreement. We present compelling statistics demonstrating the increasing popularity of these strategies, highlighting the potential for significant job creation and economic growth. We also discuss the role of government support in encouraging these shifts and the impact of technological advancements, such as automation, on making domestic production more competitive.Questions to consider as you read/listen:What are the primary economic and geopolitical factors driving the resurgence of reshoring and nearshoring?How are government policies and trade agreements influencing the reshoring and nearshoring trends?What are the future prospects for reshoring and nearshoring in the global manufacturing landscape?Long format:  Reshoring Revolution: How Jobs Are Returning to the USA and Changing Global Trade By Justin James McShane TL;DRReshoring—bringing operations back home—and nearshoring—relocating them to nearby countries—are reshaping global supply chains. These trends are driven by the need for supply chain resilience, reduced dependency on foreign suppliers, and economic incentives like the Inflation Reduction Act (IRA) and US-Mexico-Canada Agreement (USMCA). Reshoring has brought nearly 2 million jobs back to the U.S. since 2010, with record-breaking growth in 2023. Nearshoring, especially in Mexico, is gaining momentum, offering lower costs and logistical advantages. Together, these shifts are creating a more regionalized, diversified, and secure trade environment, powered by automation, innovation, and government support. The statistics show that nearshoring and reshoring is not only happening and will accelerate in the near term and into the future. INTRODUCTIONReshoring, the practice of bringing business operations back to their home country after having been outsourced abroad, represents a transformative shift in global supply chain dynamics. While often associated with manufacturing, reshoring increasingly encompasses service and industrial sectors, driven by the desire to reduce reliance on complex and vulnerable international supply chains. This movement aligns with broader trends of decoupling, where nations strive to strengthen domestic capabilities amidst geopolitical uncertainties and economic pressures. However, this trend has met resistance from proponents of globalization, whom I term "reshoring deniers." These individuals argue that interwoven global supply chains are irreplaceable and beneficial. This piece will explore the rising momentum of reshoring, its statistical underpinnings, and the government incentives driving this shift, as well as the closely related trend of nearshoring, which aims to bring operations closer to home while retaining certain economic advantages. INFORMATIONRestoring is the practice of transferring a business operation that was moved overseas (outsourced) back to the country from which it was originally relocated. This is mostly seen in the manufacturing sector but is not exclusive to it. It includes the service and industrial sects as well. Reshoring is a feature of decoupling whereby a country seeks to remove dependence on external supply chains and their complexities.  Some folks, in particular globalists who believe in interconnection between countries and intermeshed supply chains, deny that restoring is happen or that it is a “good” idea. I call them restoring deniers. Globalization is a historical process that describes the increasing connection between the world's economies, cultures, and populations. It's characterized by the movement of goods, services, capital, people, and ideas across borders. The term became more common in the 1980s due to technological advances that made it easier to conduct international transactions. RESHORING FROM A STATISTICAL POINT OF VIEWHere are the facts and the sources. What are yours other than your own personal experience? The rate of reshoring in the United States has been increasing, with a record number of jobs announced in the first half of 2023. 2022: Reshored jobs increased by 25% compared to 2021. 2023: The Reshoring Initiative reported 182,000 jobs announced in the first half of 2023, which is more than the 340,000 jobs announced in the same period in 2022. Cumulative jobs: Since 2010, nearly two million jobs have been brought back, which is about 40% of what was lost to offshoring. The Chips and Science Act, the Inflation Reduction Act (IRA), Infrastructure Investment and Jobs Act (IIJA), and the Bipartisan Infrastructure Law have incentivized domestic production. Kearney, a global management consulting firm, revealed in a survey that 96% of CEOs are now evaluating reshoring their operations, or have done so already. THE INFLATION REDUCTION ACT INCENTIVIZES RESHORINGThe Inflation Reduction Act (IRA) incentivizes reshoring by US companies by providing significant tax credits and subsidies for domestic manufacturing of clean energy technologies, like electric vehicles, batteries, and solar panels, essentially making it more financially attractive for companies to produce these goods within the United States rather than overseas, thereby encouraging them to bring manufacturing back to the country (reshoring) to access these benefits. The IRA offers substantial tax credits specifically for companies that invest in domestic clean energy manufacturing, making it more cost-effective to produce these goods within the US. The incentives are designed to encourage the production of components within the US, not just the final assembled product, which helps to build a stronger domestic supply chain. By incentivizing domestic manufacturing, the IRA is expected to create new jobs in the clean energy sector across the country. THE FUTURE FOR RESHORINGIn the future, reshoring is expected to continue gaining momentum, with companies increasingly bringing manufacturing back to their home countries, driven by factors like geopolitical tensions, advancements in automation, and a growing preference for locally produced goods, leading to a more balanced approach to global supply chains with a focus on regional manufacturing and diversification of risk rather than complete reliance on offshore production; this could involve "near-shoring" to nearby countries with favorable conditions, and will likely require government support through policies that incentivize domestic manufacturing and workforce development. Reshoring is likely to become more prevalent as companies prioritize supply chain resilience and seek to mitigate risks associated with global disruptions. Automation and advanced manufacturing technologies will play a crucial role in making domestic production cost-competitive, enabling reshoring in industries previously considered too expensive to bring back. Instead of solely focusing on bringing production entirely back to the home country, companies may adopt a "China plus one" strategy, where they manufacture in multiple regions to diversify their supply chains (nearshoring).  NEARSHORINGNearshoring is a business strategy that involves moving a company's operations from an offshore location to a nearby country or region, often to take advantage of lower labor costs, a similar time zone, and a shared culture. Nearshoring can help companies reduce lead times, improve quality control, and minimize supply chain disruptions. It can also help companies save money on labor, avoid language barriers, and tap into a global talent pool. Popular nearshoring destinations for US companies include Mexico, Canada, Central and South America, and the Caribbean. The trend of nearshoring has gained momentum in recent years, especially after supply chain disruptions during and after the pandemic. In late 2022, American manufacturers purchased more goods from nearshore countries than from China for the first time. NEARSHORING STATISTICSIn 2021, 92% of U.S. manufacturing executives considered nearshoring or reshoring, up from 78% the previous year. Of those, 47% had already nearshored, 29% planned to nearshore in the next three years, and 16% were considering reshoring. US buyers prefer nearshoring over domestic sourcing. Only 20% of US buyers reported increasing domestic sourcing in the past 12 months. A Deloitte 2024 survey found that 62% of manufacturers have started nearshoring or reshoring their production. Mexico has become the source of the most imports to the United States, surpassing China. In 2022, 52.5% of Mexico's imports of parts and accessories for motor vehicles came from the U.S.  USMCA INCENTIVIZES TO NEARSHORING BY US COMPANIESThe United States-Mexico-Canada Agreement (USMCA) incentivizes nearshoring by US companies in several ways. The USMCA reduces trade barriers and simplifies customs clearance procedures. The USMCA encourages manufacturers to source components and raw materials from North America. This can help companies secure a reliable source of materials and avoid supply chain bottlenecks. The USMCA allows qualified products to be imported to the US from Mexico without incurring duties or taxes. Mexico has a de minimis tax-free threshold of US $50 and a tariff-free entry threshold of US $117. This frees a larger volume of trade from taxes, duties, and fees. The Mexican government expects U.S. nearshoring operations to grow the country’s economy by 3.5%. Manufacturing exports from Mexico are expected to grow from $455 billion in 2023 to $609 billion by 2028. From January to November 2023, Chinese goods accounted for 13.9 % of U.S. imports, while Mexican goods accounted for 15%. Sectors that benefit from the United States-Mexico-Canada Agreement (USMCA) are expected to grow by $38 billion in the next five years thanks to nearshoring. CONCLUSIONThe reshoring and nearshoring movement reflects a fundamental recalibration of global supply chain strategies, underscoring the necessity for resilience and adaptability in a rapidly changing economic and geopolitical landscape. Supported by substantial government incentives, such as the Inflation Reduction Act and the United States-Mexico-Canada Agreement, reshoring and nearshoring initiatives are empowering companies to reduce risks, cut costs, and build stronger domestic and regional production networks. These strategies not only create jobs and stimulate economic growth but also signal a shift toward a more balanced global trade environment. As automation and advanced technologies continue to evolve, reshoring and nearshoring are poised to play central roles in redefining the future of global manufacturing and supply chain management, ensuring that nations can navigate uncertainties with greater stability and independence. SOURCES: https://www.hinrichfoundation.com/research/article/trade-and-geopolitics/china-decoupling-vs-de-risking/#:~:text=Decoupling%20refers%20to%20a%20complete,and%20potential%20weaponization%20of%20energy https://reshorenow.org/content/pdf/Reshoring_Initiative_2023_Annual_Report.pdf https://stispfa.org/reshoring-unpacked-a-transformational-shift-from-global-to-local/#:~:text=Are%20Companies%20Actually%20Reshoring?,2023%2C%20resulting%20in%20365%2C000%20jobs https://www.forbes.com/sites/jimvinoski/2024/01/25/covid-is-fading-but-reshoring-isnt/#:~:text=%E2%80%9CIn%20the%20face%20of%20a,be%20associated%20with%20onshore%20production.%E2%80%9D https://optimation.us/blogs/manufacturing-trends-in-2024-its-all-about-reshoring/#:~:text=In%20addition%20to%20bringing%20back,a%20risk%20associated%20with%20this https://stispfa.org/reshoring-unpacked-a-transformational-shift-from-global-to-local/#:~:text=Are%20Companies%20Actually%20Reshoring?,2023%2C%20resulting%20in%20365%2C000%20jobs https://reshorenow.org/content/pdf/Reshoring_Initiative_2023_Annual_Report.pdf https://manufacturing-today.com/news/why-the-reshoring-renaissance-is-the-future-of-u-s-manufacturing/#:~:text=Looking%20ahead%2C%20the%20reshoring%20trend,consumer%20preference%20for%20local%20products https://www.forbes.com/sites/willyshih/2023/02/22/the-inflation-reduction-act-will-bring-some-manufacturing-back-to-the-us/#:~:text=What%20all%20this%20means%20is%20that%20it,to%20be%20shown%20below%20the%20EBITDA%20line https://www.wri.org/insights/inflation-reduction-act-anniversary-manufacturing-resurgence#:~:text=At%20a%20factory%20in%20Jonesboro,were%20announced%20in%2044%20states https://home.treasury.gov/news/press-releases/jy1830#:~:text=First%2C%20the%20Inflation%20Reduction%20Act%20provides%20targeted,create%20opportunity%20in%20communities%20across%20the%20country.&text=By%20creating%20incentives%20for%20paying%20prevailing%20wages,allow%20workers%20to%20earn%20while%20they%20learn https://morelle.house.gov/funding-opportunities/inflation-reduction-act-consumers#:~:text=The%20Inflation%20Reduction%20Act%20is,per%20year%20in%20energy%20costs https://www.fticonsulting.com/insights/articles/return-manufacturing-north-americas-reshoring-movement https://www.columbiathreadneedle.co.uk/en/inst/insights/us-inflation-reduction-act-a-strong-force-to-accelerate-energy-transition-technologies/#:~:text=The%20act%20primarily%20aims%20to%20support%20US,chain%20of%20clean%20energy%20and%20transportation%20technologies https://www.mholland.com/market-insights/inflation-reduction-act-will-spark-north-american-manufacturing-renaissance#:~:text=Inflation%20Reduction%20Act%20Will%20Spark,increased%20innovation%20and%20industrial%20productivity.%E2%80%9D https://stispfa.org/government-incentives-fuel-us-reshoring-recovery/#:~:text=Inflation%20Reducation%20Act,Tilly%2C%20and%20an%20AMT%20webinar https://www.investmentmonitor.ai/analyst-comment/analyst-comment-reshoring-nearshoring-is-the-future/#:~:text=In%20the%20coming%20years%2C%20reshoring,chain%20disruptions%20and%20boost%20competitiveness https://www.worldfinance.com/markets/reshoring-the-future-of-supply-chains#:~:text=It's%20becoming%20less%20chain%2Dlike,economic%20challenges%20we're%20seeing.&text=Ultimately%2C%20the%20decision%20to%20relocate,some%20sort%20of%20competitive%20advantage https://www.automate.org/industry-insights/reshoring-and-nearshoring-trends-making-north-america-competitive#:~:text=Both%20reshoring%20and%20foreign%20direct,Automation%20and%20Reshoring%20Initiative%C2%AE https://www.nmb-t.com/resources/blog-post/reshoring-manufacturing-creates-production-jobs#:~:text=Reshoring%20manufacturing%20gained%20significant%20traction,continue%20in%202023%20and%20beyond https://www.fticonsulting.com/insights/articles/return-manufacturing-north-americas-reshoring-movement#:~:text=Long%2Dterm%20Projections,2022%2C%20largely%20attributed%20to%20nearshoring.&text=However%2C%20this%20shift%20doesn't,manufacturing%20strategy%20to%20diversify%20risks https://www.up.com/customers/track-record/tr110723-what-is-nearshoring-shipping-to-from-mexico.htm#:~:text=Nearshoring%20is%20a%20business%20strategy,production%20from%20China%20to%20Mexico https://www.mayerbrown.com/-/media/files/perspectives-events/publications/2023/05/whitepaper_nearshoring_fnl.pdf?rev=0383024119224587a4a922b07f9632bd#:~:text=Nearshoring%20is%20an%20economic%20trend,reducing%20costs%20and%20improving%20efficiency https://productdistributionstrategy.com/nearhsoring-statistics/#:~:text=References-,U.S.%20Nearshoring%20Statistics%20In%20the%20Western%20Hemisphere,prospect%20of%20reshoring%20their%20operations https://blog.qima.com/traceability/nearshoring-reshoring-trends https://www.shippingsolutions.com/blog/u.s.-companies-reshoring-and-nearshoring#:~:text=A%20recent%20Deloitte%20survey%20found%20that%2062%,started%20reshoring%20or%20nearshoring%20their%20production%20capacities https://www.brookings.edu/articles/usmca-and-nearshoring-the-triggers-of-trade-and-investment-dynamics-in-north-america/#:~:text=Mexican%20exports%20incorporate%20inputs%20with,%2C%20this%20number%20was%2012.7%25.&text=This%20underscores%20the%20role%20the,while%20Canada%20supplied%20approximately%205.9%25.&text=So%2Dcalled%20%E2%80%9CFactory%20Asia%E2%80%9D,Malaysia%2C%20Taiwan%2C%20and%20Vietnam.&text=This%20is%20particularly%20evident%20in,manufacturing%20(see%20Figure%202) https://www.controleng.com/articles/reshoring-nearshoring-trends-making-north-american-manufacturing-competitive/#:~:text=Mexico%20has%20exceeded%20China%20as,energy%20to%20railways%20and%20ports https://novalinkmx.com/2024/09/26/leverage-nearshoring-in-mexico-for-a-competitive-advantage/#:~:text=Rules%20of%20Origin,tensions%20or%20international%20shipping%20delays https://www.averitt.com/blog/ultimate-guide-nearshoring-reshoring#:~:text=The%20practice%20of%20nearshoring%20has,procedures%20and%20reducing%20trade%20barriers https://www.taylor.com/blog/nearshoring-in-mexico-has-transformed-manufacturing#:~:text=3:%20Favorable%20Trade%20Agreements,to%20be%20friendly%20and%20stable https://www.bloomberglaw.com/external/document/X7FIB1NK000000/commercial-professional-perspective-nearshoring-to-mexico-opport#:~:text=De%20Minimis%20Threshold%20(USMCA%20Ch.&text=Mexico%20has%20implemented%20a%20US,of%20the%20US%20($800) 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