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Written by: C.J. Lawrence LLC
The drive to reduce logistics complexity, avoid international trade squabbles, source relatively cheap and reliable energy, and utilize new manufacturing technologies are all contributing to a manufacturing renaissance in the United States. Reversing decades of manufacturing offshoring, the United States is becoming an increasingly attractive manufacturing destination for companies looking to tap into the world’s largest consumer market while manufacturing goods at favorable production cost economics. The change in the global manufacturing tide has been referred to as onshoring, or in some cases, reshoring.
While U.S. multi-national companies have pursued global manufacturing bases for over a century, the trend toward U.S. manufacturing offshoring took hold in the 1970s as U.S. consumer electronics companies came under intense pressure from international competitors. To combat cost pressures, U.S. companies began seeking, and finding, opportunities to lower unit labor costs outside of the United States and consequently moved operations overseas. More recently, China has emerged as one of the world’s lowest cost manufacturing destinations, earning it the title as “the world’s shop floor.” But U.S. companies have come to realize that regional supply chains are more reliable than global supply chains and that shorter routes from production to distribution result in fewer logistical challenges and greater inventory stability. According to a study performed by the Boston Consulting Group, more than 90% of the U.S. manufacturers they surveyed have relocated some production from China to the United States in the past five years, and a similar percentage plan to make such moves in the next five years.
Federal incentive programs including the Investment and Jobs Act (IIJA), the Inflation Reduction Act (IRA) and the CHIPS and Science Act (Creating Helpful Incentives to Produce Semiconductors and Science Act) are also helping to incent manufactures to reshore or onshore production. These programs, along with new federal, state, and local incentive programs are funding large and small manufacturing projects across the country. The Federal Reserve Bank of St. Louis recently noted that total U.S. manufacturing construction spending has eclipsed $200 billion on an annualized rate for the first time in the series’ history.
The increase in manufacturing construction spending dovetails with the increased U.S. spending on industrial robots. According to the International Federation of Robotics, U.S. corporations installed over 35 million industrial robots in 2021 (the most recent year for which their data is available). That figure is forecasted to be exponentially higher in 2022 and 2023. The adoption of automation and robotics is believed to be a key driver of increased onshoring as it helps level the global playing field of unit labor costs. Indeed, while labor costs, adjusted for productivity, rose by 21% in the U.S. from 2018 through 2022, they rose by 24% in China. The gap continues to narrow. The 2023 Boston Consulting Group study also suggests that the incorporation of industrial robots in the manufacturing process can help U.S. companies reduce production costs by 30% to 50%.
Geopolitical tensions have only increased U.S. manufacturers’ interest in returning, and commencing, production in the United States. With an attractive relative demographic profile, low energy costs versus other manufacturing jurisdictions, a healthy banking system and capital markets, and modern infrastructure, the United States is extending its competitive advantage in manufacturing. That trend is expected to continue for many years to come.
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