US reshoring efforts founder in 2020 after record high in 2019
American manufacturing lost ground to low-cost Asian countries in 2020, according to consulting firm Kearney’s annual reshoring index report. The index tracks whether the US is reshoring manufacturing jobs from China and other low-cost countries in Asia.
Hit by Covid disruptions, Kearney's reshoring index dropped to -87 in 2020 after reaching a record high of 98 in 2019. A negative index number indicates net offshoring versus the previous year.
US imports of manufactured goods from 14 Asian low-cost countries equaled 12.95% of US domestic gross manufacturing output in 2020, increasing from 12.08% in 2019. This resulted in a reshoring index number of -87 for 2020.
That figure returns Kearney’s reshoring index to the mostly negative results that have persisted since 2009.
2019’s positive figure was driven by tariff policies depressing imports from China and boosting imports from Mexico. US manufacturing output remained largely unchanged.
The pandemic resulted in a rollercoaster ride for manufacturing imports in 2020, however. Covid sewered imports from China in the first quarter, but then Chinese imports rebounded strongly in the second quarter as Covid shuttered domestic production in the US. Later in the year, imports from other low-cost Asian countries like Vietnam, Taiwan, and Thailand surged, while Chinese imports flattened.
Despite the net offshoring result, American executives still express favorable views toward reshoring, according to a sister study from Kearney. More than half (52%) say they are increasing sourcing of US products as a response to pandemic disruptions, while 17% are increasing sourcing from Mexico and Canada.
Nearly half (47%) of US executives said they will aim to reduce dependency on single-country sourcing over the next three years, with 41% identifying a reduction of dependence on China.
Nonetheless, 60% of respondents said that Covid has disrupted the productivity gains in US facilities that allowed for greater competitiveness with low-cost countries. A similar amount said that Covid-driven furloughs and layoffs have made it difficult to find and hire the right workers.
"What was once largely a binary choice―offshore to save costs or manufacture domestically―has now become a more complex set of decisions to factor in risk and resilience. This new approach, which some call 'right-shoring,' entails much more nuanced consideration of where to source products," said Patrick Van den Bossche, Kearney partner and leader of the Kearney Reshoring Index study.
