The Reshoring initiative says the combination of reshoring and job announcements related to foreign direct investment (FDI) for the full year 2022 were at the highest rate ever recorded.
The organization says the Chips and Infrastructure Acts, along with prevailing deglobalization trends, drove fourth quarter results even higher than forecast.
“The current actions and momentum are a great start. A true industrial policy would accelerate the trend and increase U.S. manufacturing by 40 percent and five million jobs,” said Harry Moser, founder and president of the Reshoring Initiative, in a release.
The report contains data and analysis on trends in U.S. reshoring announcements by U.S. headquartered companies and FDI by foreign companies that are shifting production or sourcing from offshore to the U.S.
Top takeaways from the report
- More than 364,000 reshoring and FDI jobs were announced for 2022, up 53 percent from the previous record of 238,000 set in 2021.
- The total number of jobs announced since 2010 is now nearly 1.6 million. The report says new investments in U.S. manufacturing by domestic and foreign companies surged after the Inflation Reduction Act and Chips and Science Act were passed.
- The reshoring trend picked up steam in 2020, driven by companies recognizing their vulnerability to supply chain disruptions and geopolitical events.
- U.S. investments in chips and EV batteries accounted for 53 percent of 2022 job announcements. EV batteries make electrical equipment the top industry.
- In 2022 Electrical Equipment remained the top industry. Computers and Electronics moved to second place, transportation fell to fourth place and Chemicals moved up to take third place.
Reshoring vs. FDI
For the third year in a row, reshoring outpaced FDI, mostly from peaking globalization and U.S. incentives for reshoring. The high rate indicates that companies headquartered in the U.S. are understanding the benefits of localized production that many foreign companies have understood for decades.
The report describes globalization in two forms. The first is single source, where production is in one location and supplies the world. The second form is localization, with production in each country or region is meant for that specific market. The report says a shift toward localization shows that single source global trade will peak soon.
Localization is driving FDI in the U.S. because of three drivers: the U.S. remains the biggest market in the world with a healthy economy and stable business climate; incentives associated with the infrastructure and IRA bills will apply only to products that fit Made in North America provisions, and; the risks associated with geopolitical tensions are minimized with U.S. production.
Shifting Supply Chains
Supply chain gaps and the need for greater self-sufficiency have set the stage for the current upward trend in reshoring, according to the report. The risks of a Taiwan-China conflict or China voluntarily decoupling are focusing those concerns.
Destabilizing geo-political and climate forces have brought to light our vulnerabilities and the need to address them. The White House responded with the Inflation Reduction Act, Chips Act and Infrastructure Bill, offering some direction and financial security to the companies and industries intent on filling the gaps.
Moser says these government actions are necessary in the short run but are not sufficient since they do not improve the America’s uncompetitive cost structure. A true industrial policy would level the cost playing field with comprehensive actions such as massive skilled workforce investments, a 25 percent lower USD and retention of immediate expensing of capital investments.
Reshoring by Region
The numbers show the U.S. is taking back a greater share of manufacturing from Asia, with 2022 reshoring job announcements moving cumulative reshoring data from Asia up by nine percentage points compared to 2021, from 63 percent to 72 percent. FDI from companies headquartered in Asia has increasing in the U.S. economy, especially in relation to Western Europe’s involvement. Asia accounted for more than half of all new job announcements at 53 percent, beating Western Europe by 10 percent in FDI in the U.S. This is the first time Asia has overcome Western Europe in this metric.
Factors Cited
The report says that while the rise in the trend is boosted by temporary support from federal policy, Moser says he expect the stimulus to result in further EV battery investments and FDI of EV assembly plants. The increased chip investments will also motivate more companies to assemble electronic products in the U.S. Increased nearshoring of work from Asia to Mexico will still require about 40 percent U.S. value added, leading Moser to forecast 2023 and 2024 will remain strong, continuing at about 350,000 job announcements per year.
While recent the government incentives certainly make an impact, and companies which opt for reshoring often cite these factors when making an announcement, the report predicts that factors further down the list, such as addressing supply chain disruption, proximity to customers and reduced lead times are the true driving forces affecting companies’ bottom lines and the decisions to reshore, which will allow for the trend to continue when government incentives dry up.
Breakout factors that saw the largest increase in citing from reshoring companies include manufacturing and engineering joint innovation (R&D) and automation. These factors reflect necessary aspects of competitiveness: greater automation is required to overcome workforce shortages and offset higher U.S. labor costs; more manufacturing near R&D will increase the efficiency of both departments and help the U.S. retain intellectual property.
With the IRA, Chips Act, and Infrastructure Bill, the U.S. Government is finally warming up to an industrial policy, though a more comprehensive plan could be achieved at a lower cost. The report says that these bills are not an industrial policy, but isolated industrial actions.
“We publish this data quarterly to show companies that their peers are successfully reshoring and that they should re-evaluate their sourcing and siting decisions,” said Moser. “With five million manufacturing jobs still offshore—as measured by our $1.2 trillion-per-year goods trade deficit—there is potential for much more growth.”