The global pandemic has exposed the vulnerabilities of relying on overseas suppliers for critical goods such as clothes, computer chips and electric vehicle batteries. As a result, many U.S. manufacturers are looking to source products closer to home, turning away from manufacturing powerhouses like China—and in recent months the trend has accelerated due to a combination of factors we’ll explore in this article.
This trend, known as reshoring, is set to upend global supply chains and create more jobs and economic growth in the U.S.
Reshoring: Latest Trends
According to Bank of America, mentions of “reshoring” in S&P 500 earnings transcripts were up 128% in the first quarter of 2021 compared to the same period a year ago, surpassing mentions of “artificial intelligence.”
Meanwhile, a survey by UBS found that 70% of U.S. executives plan to move parts of their supply chain closer to home, along with 78% of European executives and 54% of Chinese executives.
There are several factors driving this shift, including rising labor costs, trade tensions, environmental concerns and consumer preferences. But perhaps the most urgent reason is the need to secure supply and reduce risk in the face of disruptions such as Covid-19, natural disasters and geopolitical conflicts.
For example, China, which has been at the center of global manufacturing for decades, is losing its dominance as its factory activity declined in April and May. Meanwhile, Russia’s invasion of Ukraine and the aftereffects of the Covid-19 pandemic are continuing to disrupt shipping, meaning some companies are rethinking their sourcing methods.
Investments in American-Made
At the same time, the U.S. government is pushing forward with incentives for domestic manufacturing of strategic sectors such as computer chips and electric vehicle components. In August 2021, President Biden signed the Inflation Reduction Act, which provides tax credits for EVs. In February 2021, he announced plans to invest $37 billion to boost chip production in the U.S.
The European Union has also announced a 43 billion euro ($46 billion) package to increase chip manufacturing in the bloc. These initiatives are aimed at reducing dependence on foreign suppliers, especially from Asia, where most of the world’s chips are made.
Fueling Fast Fashion
One of the sectors that is reshaping its supply chain through reshoring is fast fashion. Fast fashion companies are known for their ability to quickly produce and deliver trendy clothing items at low prices, often relying on offshore outsourcing to countries with cheap labor and lax environmental regulations. However, this model has also faced criticism for its negative social and environmental impacts, as well as its vulnerability to disruptions such as Covid-19, trade wars and shipping delays.
Therefore, some fast fashion companies are shifting their production closer to their markets, either by reshoring to their home countries or by nearshoring to neighboring countries. This allows them to reduce lead times, improve quality control, respond faster to customer demand and enhance their sustainability credentials. Some examples of fast fashion companies that are reshoring or nearshoring include Zara, which produces more than half of its products in Spain and nearby countries; H&M, which has increased its sourcing from Turkey and Bangladesh; and Boohoo, which has expanded its UK-based manufacturing capacity.
Consumer Preferences Towards American-Made
Another factor that is influencing the reshoring movement is the consumer interest in American-made products. Made-in-USA pride is a growing trend with many Americans wanting to support the U.S. manufacturing economy by buying products that are made in the USA. According to a Reuters-Ipsos poll, 69% of Americans believe that an item being U.S.-made is at least somewhat important, and 63% want U.S. agencies to buy American-made products even if they cost significantly more.
Consumer interest in American-made products is also driven by concerns about quality, safety, sustainability and social responsibility. Many Americans perceive made in the USA products are of higher quality, more durable, safer and more environmentally friendly than products made overseas. They also want to avoid supporting unethical labor practices, human rights violations and unfair trade policies that may occur in other countries. By buying American-made products, consumers can express their patriotism, preferences and values.
Companies Bringing Production Stateside
Some of the companies that have announced reshoring plans or investments include:
• General Motors The automaker has reshored 12,988 jobs, mostly in the transportation equipment sector. It has announced plans to invest $27 billion in electric and autonomous vehicles by 2025, creating thousands of new jobs in the U.S.
• Micron Technology The chipmaker said it planned to invest more than $150 billion in memory chip manufacturing and research and development over the next decade, with a portion of that to be spent in the U.S.
• Apple brought back 22,200 jobs in 2020, mainly in the semiconductor and computer industries. Apple also plans to invest $430 billion in the U.S. over the next five years, creating 20,000 new jobs and supporting domestic suppliers.
• Walmart committed to buying $250 billion worth of American-made products by 2023, supporting 750,000 new jobs. Walmart also launched a new initiative called American Lighthouses, which aims to bring together key stakeholders in different regions to collaborate on reshoring opportunities.
• Boeing has reshored 7,725 jobs, also in the transportation equipment sector. It has moved some of its production of 787 Dreamliner jets from South Carolina to Washington state, citing quality and efficiency reasons. [.
• Lighting company Hubbardton Forge reshored some of its production from China to Vermont, creating 40 new jobs. Hubbardton Forge also invested $30 million in a new factory and showroom in Castleton.
Reshoring Challenges
Reshoring is not without challenges. One of the main obstacles is the labor shortage in the U.S., which limits the number of overseas manufacturing jobs that can be absorbed domestically. Another challenge is the lack of infrastructure and raw materials needed to support domestic production.
For example, lithium hydroxide, a key component of EV batteries, is mostly produced in China right now. The U.S. will need to ramp up its mining and refining capacity to become self-sufficient in this critical material.
Reshoring also requires a long-term vision and commitment from both businesses and policymakers. It may not always be cheaper or faster to produce goods domestically than overseas. It may also require significant changes in business models and consumer behavior.
Domestic Sourcing & Your Business
But despite these challenges, reshoring offers many benefits for U.S. manufacturers and consumers alike. It can improve quality control, innovation, customer service and brand loyalty. It can also reduce environmental impact, support local communities and strengthen national security.
As more U.S. manufacturers embrace reshoring as a strategic advantage, they will need reliable sources of information and suppliers to help them succeed. That’s where IndustryNet comes in.
IndustryNet is a comprehensive online platform that connects industrial buyers with over 400,000 U.S.-based manufacturers and suppliers across 10,000 product categories. Whether you need raw materials, parts, equipment or services, you can find them on IndustryNet.
You can also use IndustryNet to request quotes from multiple suppliers, compare prices and delivery times, and place orders online. IndustryNet is free for industrial buyers and easy to use.
Sources:
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https://www.investopedia.com/terms/r/reshoring.asp
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https://www.forbes.com/sites/tonyuphoff/2020/08/24/3-underreported-trends-that-will-accelerate-reshoring/
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https://www.fibre2fashion.com/industry-article/8452/reshoring-and-onshoring-the-future-of-apparel-sourcing
https://www.wallstreetmojo.com/reshoring
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https://www.scmr.com/article/americans_say_they_prefer_products_made_in_usa_and_will_pay_more_for_them
