US reshoring takes backseat to record high offshore imports

27 July 2018 Authored by Consulting.us

Despite anecdotal evidence of reshoring efforts in US manufacturing, imports from traditional offshoring countries in Asia have continued to grow. Imports of manufactured goods from the 14 largest low-cost country trading partners in Asia rose 8% to $55 billion in 2017. Since 2013, manufactured imports from the above countries increased by $118 billion, or 19%, while US manufacturing output grew by only $81 billion, or 1%.

Though there are trumpeted examples of firms bringing back some manufacturing operations to the US – like Hasbro opening up a new production line for Play-Doh in Massachusetts – it’s important to parse out whether reshoring a real trend or a soothing political narrative. As a result, strategy firm A.T. Kearney launched its Reshoring Index four years ago to separate fact from hype.

The most recent edition of the report finds that the import of manufactured goods from the US’ 14 largest low-cost Asian trading partners jumped a full 8% – the largest increase since the economic recovery in 2011. Imports from Asian trading partners grew by $55 billion to reach $751 billion; China remains the primary importer, accounting for $494 billion, or roughly two-thirds of the manufactured goods imports.Asian import growth into the US – 2011 to 2017The conclusion of 2018’s index is, thus, that the reshoring narrative is probably more illusion than reality. Though US manufacturing gross output has grown by $81 billion (1%) since 2013, the gains have been easily outstripped by Asian imports – which grew 19% in the same time span for an increase of $118 billion.

The $1.5 trillion tax cut brought in by Trump is likely to exacerbate the trend. According to the report, “The combination of an overstimulated economy and a jobless rate that is the lowest it has been in more than a decade will likely result in even more imports when domestic manufacturing can’t keep up with growing consumer demand.”Rising imports to US from Asian offshoring countriesTo arrive at its reshoring index, A.T. Kearney simply divides manufactured goods import value from the 14 Asian countries over US domestic gross output of manufactured goods. As such there were 12.4 cents of imports for every $1 of US manufacturing output. Import percentage has risen steadily from the 9.15% recorded in 2008. The report cites the ongoing benefits of cheap labor, a shortage of skilled US labor in an increasingly tech-driven sector, and the large investments already made into offshoring as key reasons for the steady growth of imports.

A.T. Kearney’s report cautions that it’s too early to tell what kind of effect Trump’s escalating trade war with China will have on reshoring. Companies are currently weighing the probable longevity of tariffs, as well as whether to relocate to another low-cost country, or to the US.

In any case, the effects of Trump’s protectionism have yet to truly be felt. “Of course, the global economy is an oil tanker rather than a speedboat, so it’s possible that the political posturing, potential tariffs, and tax cuts could turn the tide over time,” the report’s authors commented. “But with many unknowns in trade policy, companies must understand all potential futures and develop contingency plans, including reshoring.”

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