US Manufacturers are Not Reshoring

"The long-term trend of manufacturing products for the US market in countries such as China and other low-cost Asian countries has not been curbed, as the increase in products being imported from there has only accelerated last year,ā€ said A.T. Kearney study.

Viewing importing of good as a indicator of whether or not manufacturers are bringing back operations to the US, A.T. Kearney's fourth annual Reshoring Index shows record U.S. imports from traditional offshoring countries in 2017. Imports of manufactured goods from the 14 largest low-cost country trading partners in Asia rose by $55 billion, or 8%—the largest one-year increase since the economic recovery of 2011.

This is a sharp reversal of the glimmers of hope seen in 2016 in regard to manufacturers moving operations back stateside, the group says.

"The long-term trend of manufacturing products for the U.S. market in countries such as China and other low-cost Asian countries has not been curbed, as the increase in products being imported from there has only accelerated last year,” said Patrick Van den Bossche, A.T. Kearney partner and co-author of the study. It's going to take more than bold proclamations from politicians to affect any meaningful and lasting change."

After rising to a five-year high in 2016 in the wake of a U.S. presidential election with significant attention on manufacturing job loss to China, the Reshoring Index has dropped 27 basis points.

Relative growth of imports from the low-cost country trading partners has now outpaced relative growth of U.S. manufacturing gross output in four of the past five years and eight of the past 10 years—showing a clear direction away from reshoring. Since 2013, imports of manufactured goods from the 14 largest low-cost countries have increased by $118 billion, or 19%, while U.S. manufacturing gross output has grown by only $81 billion, or 1%.

President Donald Trump has clearly signaled that he wants to challenge the status quo of US trade. "Companies must weigh the risk and, if indeed, impose the longevity of tariffs on goods from low-cost countries and determine if the United States is even the logical location to move manufacturing capabilities if, for example, China is no longer economical," said Johan Gott, A.T. Kearney principal and co-author of the study.

Study Findings

The A.T. Kearney US Reshoring Index provides insight about the factors that are influencing reshoring and the imports of offshore manufactured goods. For example, China accounted for more than $40 billion of the import growth in 2017, led by a $22 billion year-over-year increase in electronics imports, even as the U.S. dollar strengthened slightly on average versus the Chinese yuan over the course of the year before depreciating rapidly in the fourth quarter. 

Electronics were initially viewed as a prime candidate for reshoring from low cost countries. In 2015, after more than a decade of high-tech manufacturing leaving the United States for China and other low-cost countries, U.S. domestic manufacturing did indeed increase its share in the sector relative to imports. As a result, in 2016, electronics imports from China declined by more than $7 billion. But that short-lived trend has now reversed.

"The 2017 data shows a return to the historical offshoring trend for electronics," notes Brooks Levering, A.T. Kearney vice president. "It is not only high-tech imports that bounced back. Metals, plastics, and chemicals imports from China all grew at near double-digit rates after 2016 declines. We expect some correction in 2018 with the recent currency depreciation. Obviously, tariffs—and any sign of a prolonged trade war with China—could impact the direction of the Index as well."

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