The tide has finally turned. After decades of jobs leaving the US, particularly in manufacturing, the Reshoring Initiative reports a net gain in 2016 of jobs returning to US soil as well as foreign direct investment (FDI), a trend driven in part by rising costs from producing goods overseas and corporate treasury-focused concerns such as currency volatility.
“In 2014 and 2015 parity was reached between offshoring and returning jobs, indicating that the net bleeding of manufacturing jobs to offshore had stopped,” according to the Reshoring Initiative’s recent report. “As of 2016, for the first time, probably since the 1970s, there was a net positive gain in US jobs.”
The report says that reshoring and FDI resulted in 30,000 new jobs in the US last year. While far from stellar, the gain is a significant improvement from losing 220,000 manufacturing jobs per year at the beginning of the last decade, the report says. It adds that measured by the US’s trade deficit of about $500 billion a year, there are at least three million manufacturing jobs offshore at today’s current level of productivity.
The data cited in the report stems from the Reshoring Initiative’s library of more than 4,000 published articles, privately submitted Reshoring case studies, and other privately documented cases. The report says that reshoring and FDI are both motivated by the financial advantages a company achieves by producing closer to its customers.
Companies are still offshoring jobs, and in 2016 they sent about 50,000 jobs overseas. However, approximately 80,000 jobs were created in the US, either from companies bringing back that production or by foreign companies building or acquiring manufacturing capability on US soil.
“Reshoring and FDI together were up over 10% in 2016, with much of the increase coming in November and December, presumably due to anticipation of greater U.S. competitiveness following the election,” the report says, adding that the cumulative number of manufacturing jobs brought from offshore since 2010 is 338,000.
The report says job creation stemming from reshoring is more prevalent among high-tech manufacturing jobs, which tend to be more desirable since they generate more investment, R&D, higher pay, and less risk of loss to low wage countries. However, it says, there’s been a recent uptick in low-tech jobs, in sectors such as apparently, wood, plastics and rubber.
The most active reshoring, according to the report, is by companies that moved their production overseas and probably shouldn’t have done so, in industries including machinery, transportation equipment and appliances, because the size and weight of their products provides less in terms of cost savings.
Most of the reshoring, about 60%, comes from China, while Most FDI stems from German and Japan, with Mexico and Canada also contributing significantly.
Negative offshoring factors are mostly the higher costs, whether rising wages in China and other developing countries or freight and delivery. The Reshoring Initiative also found risk elements such as supply chain disruption and currency fluctuations to be challenges. Meanwhile, producing in the US gives proximity to customers, government incentives, a skilled workforce, infrastructure and several other advantages.
“Reshoring is still in the early stages of a decades long trend,” the Reshoring Initiative says. “The purpose of this report is to provide trend data, which should motivate companies to reevaluate their sourcing and siting decisions and make better decisions that consider all of the cost, risk and strategic impacts flowing from those decisions.”
It adds that 2017 results will depend largely on actual tax, trade and regulatory policy changes, and “if and when the policy changes occur, reshoring and FDI will accelerate.”