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A.T. Kearney’s 2018 Reshoring Index: Has the Reshoring Trend Reversed?

08/09/2018 By

Harley-Davidson was in the news last month when it announced that it would be shifting some production overseas as a result of the E.U.’s planned retaliatory tariffs on the U.S.

The American motorcycle manufacturer is also closing its Kansas City factory and opening a plant in Thailand, decisions that were spurred by sluggish domestic sales and the U.S.’s withdrawal from the Trans-Pacific Partnership (TPP).

As it turns out, Harley-Davidson is hardly alone. Since 2013, A.T. Kearney has been tracking reshoring, and its 2018 Reshoring Index shows that the practice has not taken hold. In fact, U.S. “imports of manufactured goods [in 2017] from the 14 largest low-cost country trading partners in Asia rose by a staggering $55 billion.” This marks an 8% increase from 2016, as well as the biggest year-on-year increase since 2011.

Reshoring has been a hotly debated topic in recent years as a result of rising overseas manufacturing costs and demand among American workers to bring manufacturing jobs back home. The Reshoring Initiative was founded in 2010 by a group of manufacturers with precisely this purpose. And the 2016 U.S. presidential election cycle, with its focus on loss of manufacturing jobs, brought even more attention to reshoring.

However, A.T. Kearney’s report shows that U.S. manufacturing output has increased by only 1% since 2013, compared with the 19% growth in imports of manufactured goods from the aforementioned 14 countries: China, Taiwan, Malaysia, India, Vietnam, Thailand, Indonesia, Singapore, the Philippines, Bangladesh, Pakistan, Hong Kong, Sri Lanka and Cambodia.

A.T. Kearney assesses the reshoring trend by means of a manufacturing import ratio (MIR), or the gross import of manufactured goods from the 14 countries divided by the U.S. domestic gross output of manufactured goods. Last year, the MIR was 12.44%, the highest since A.T. Kearney published its first Reshoring Index in 2014.

The report puts forth a few potential explanations for why the reshoring trend seems to be reversing. One is simply cost. Overall, it is still more economical to produce goods overseas. Second, a shortage of skilled labor poses a major challenge to manufacturers’ reshoring efforts. And lastly, the report points out that the growth in imports has been driven more by manufacturing operations that are already overseas.

Another interesting trend is that companies are no longer publicizing their reshoring efforts to the extent that they were in 2013 and 2014, as the graph above shows. The report points to the current highly polarized political environment, suggesting that “attracting no attention is often perceived to be better than attracting the wrong kind of attention.”

Among the 14 countries, China remains the primary source of manufactured goods imports into the U.S., accounting for two-thirds in 2017 — a share that has hardly budged this decade. However, 2o18 may be the year that this trend reverses, as the U.S.-China trade war plays out.

A.T. Kearney’s 2018 Reshoring Index can be found here.