Re-Born in the USA: Who will Benefit from the Reshoring Trend?

Re-Born in the USA: Who will Benefit from the Reshoring Trend?

11 Jul, 2024 | Market Insight

In recent years, the trend of deglobalisation and “reshoring”—bringing manufacturing production back home to the US—has gained momentum. This shift is accelerating due to the Biden administration’s investments, tax incentives, and a tougher stance on China’s technological ambitions. While offshore production sites face setbacks, the U.S. economy and various key industries stand to benefit.

Globalisation, once seen as an unstoppable force, has slowed since the early 2000s due to rising U.S. income inequality and shifting perceptions of offshore manufacturing. The COVID-19 pandemic exposed the fragility of global supply chains, leading to widespread shortages and logistical challenges. Factories shut down, postal services were overwhelmed, and even hospitals struggled to secure essential supplies. Governments and companies are now focused on strengthening domestic supply chains to mitigate these vulnerabilities.

Geopolitical developments, such as increased scrutiny of foreign investments and national security concerns, have further decelerated globalisation. Recent events, including the Russia-Ukraine conflict, and U.S.-China trade tensions, have highlighted the risks of global supply chains, driving a renewed focus on localising production.

As we delve deeper, we’ll uncover some of the key beneficiaries of this reshoring trend, exploring how these developments act as a powerful tailwind for future growth.

The Shift Away from Globalisation

Starting in the 1970s, the opening of developing markets, particularly China, to international trade and finance led to a strong movement toward the globalisation of production and supply chains. American manufacturers benefited from offshoring—outsourcing production to other countries—by cutting costs, improving efficiency, and accessing new markets.

However, globalisation also brought significant drawbacks. The U.S. economy suffered from the massive loss of manufacturing jobs, deterioration of domestic capabilities, and expanded trade and budget deficits. Offshoring companies became increasingly dependent on foreign suppliers and exposed to risks such as intellectual property theft, exchange rate fluctuations, political instability, and natural disasters.

More recently, several factors have spurred the drive toward improved supply chain resilience:

  • Increasing interdependence of global supply chains.
  • Vulnerability of lean supply chains to external shocks from the pandemic, tight labour markets, or shipping container shortages.
  • Rising geopolitical tensions among trading partners, heightening the risk that a single partner could disrupt the flow of needed supplies.

Geopolitical tensions, natural disasters, and economic uncertainties continue to threaten globalisation. As the U.S.-China clash over cutting-edge technology intensifies, the Biden administration has ramped up efforts to retain intellectual property and jobs domestically through economic support for reshoring companies and limiting Chinese access to U.S. technology.

Advantages of Reshoring

Reshoring offers numerous benefits for the U.S. economy, such as reducing unemployment, increasing the skilled workforce, fostering productive communities, and cutting trade deficits. For instance, 38% of new jobs created in 2022 were attributed to reshoring operations, with an additional 300,000 jobs created in 2023. However, the advantages of reshoring extend beyond macroeconomic impacts and significantly benefit companies that bring their operations back home.

By producing in the U.S., companies can cut costs that have risen dramatically in offshore production countries over the past decade or two. These include increasing wages abroad, higher transportation costs, stringent quality control measures, and the necessity of protecting intellectual property rights. Additionally, reshoring can lead to shorter delivery times, availability of skilled labour, and a reduced carbon footprint, all of which are becoming increasingly important in today’s market.

In summary, offshore production has become much less justified economically than a decade ago, while the risks of long and complex supply chains have become substantially more acute.

Government Support for Reshoring

Reshoring is a complex and costly process, requiring significant support from policymakers. The U.S. government has introduced several initiatives to aid businesses in navigating these challenges. The Infrastructure Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA), and the CHIPS Act are pivotal in supporting American businesses, providing over US$2 trillion in federal spending over the next decade. These initiatives aim to enhance U.S. economic competitiveness, innovation, and industrial productivity.

And, at the business level, it’s already working. According to a survey by Kearney, 96% of CEOs are evaluating reshoring, have decided to reshore, or have already reshored their operations, a significant increase from 78% in 2022. Additionally, mentions of “reshoring” in company earnings reports are rising faster than mentions of “Artificial Intelligence (AI),” highlighting the growing importance of this trend.

Key Beneficiaries of Reshoring

Many U.S. businesses across various industries are investing in reshoring their production and sourcing. Technology firms like Intel (NASDAQ: INTC), Texas Instruments (NASDAQ:TXN), and Taiwan Semiconductor (NYSE:TWN) are direct beneficiaries of the CHIPS Act, which provides grants to companies expanding semiconductor production in the U.S.

In November 2022, Panasonic (TYO:6752) began constructing a new lithium-ion battery manufacturing facility in Kansas, expected to create 4,000 jobs and represent the largest private investment in the state’s history. This facility is part of Panasonic’s strategy to expand its battery production capabilities in the U.S. The company already operates a joint battery plant with Tesla in Nevada and plans to build a third somewhere in the central U.S.

Additionally, late in 2023, Micron (NASDAQ:MU) announced plans to build a US$20 billion semiconductor chip factory in New York, which could eventually grow to a US$100 billion investment, creating 50,000 jobs. 

Broader Industrial Impact

The Inflation Reduction Act (IRA), focusing on clean energy technologies, energy efficiency, and reduced healthcare costs, is already boosting U.S. manufacturing. The IRA, along with the CHIPs Act and the Infrastructure Investment and Jobs Act, is expected to drive substantial infrastructure spending for years to come. This spending will benefit numerous companies across industrial, construction, and material sectors, where there is exponential growth required to address surging demands, as we discussed in Power Play: Investing In Energy For Innovation

The TAMIM Takeaway

As the U.S. continues to navigate geopolitical and economic challenges, reshoring will remain a critical strategy for sustainable growth and innovation. This trend is creating significant opportunities across various sectors, supported by government initiatives like the Infrastructure Investment and Jobs Act, the Inflation Reduction Act, and the Chips Act, which foster a favourable macro environment for companies poised to thrive.

For global investors, companies benefiting from reshoring, along with other secular tailwinds, present promising long-term prospects. These companies are positioned to capitalise on cost efficiencies, reduced supply chain risks, and robust policy support for innovation and growth.

TAMIM has just launched the new Global Tech and Innovation unit class which takes advantage of these reshoring trends. Please click here to see more information on this exciting new investment opportunity.


Disclaimer: Texas Instruments (NASDAQ: TXN) is currently held in TAMIM Portfolios.