Economists, experts and industry observers across a wide spectrum agree that the proposed tariffs on imports by President-Elect Donald Trump will have an impact on reshoring activity in the U.S. What is uncertain, however, is the degree to which higher prices on goods shipped to America will have on the historical arc of manufacturing jobs moving back to America or precisely when any new tariffs might trigger a commensurate uptick in the number of manufacturing jobs reshored.
That was the gist of a recent webcast conducted by the Reshoring Initiative titled: “What the Trump Presidency Means for Reshoring: Tariffs, Taxes and Training.” Webinar presenters included: Harry Moser, founder of the Reshoring Initiative, and Chris Semenuk, portfolio manager for the Tema Reshoring Strategy. Moser holds a Bachelor’s of Science degree and a Master’s in Engineering from MIT, and an MBA from the University of Chicago. He also spent decades in machine tool manufacturing. Moser has also participated actively in the Obama administration’s insourcing forum and testified at the Senate Commission hearing on U.S. supply chains in China.
With the election now behind us and higher tariffs expected to be a focal point of the new administration’s “America First” policy agenda, Moser and Semenuk said investors face uncertainty about how these measures could impact the ongoing reshoring and manufacturing resurgence across the U.S.
Topics covered during the webcast included:
- The role of tariffs as either a “carrot or a stick” in promoting reshoring
- Potential impacts of reversing Biden administration policies like the IRA and CHIPS Act
- Risks posed by domestic inflation and regulation on reshoring efforts
- Overcoming America’s historic skilled workforce challenges
- Necessary tax incentives to stimulate reshoring
Following are excerpts of that webcast:
Reshoring trends
When Moser founded the Reshoring Initiative in 2010, he identified 11,000 manufacturing jobs coming back to the U.S. This, he said, was due to a combination of reshoring by U.S.-headquartered companies (i.e., General Motors) and foreign direct investment (FDI) by firms headquartered overseas (i.e., Toyota Motor Co.) What occurred in the immediate years that followed was sort of a “stop/ start” trajectory.
As Moser explained: “Reshoring made a nice sort of steady progress, fell off a little bit under Obama, and then picked up nicely under Trump, specifically with the tax and regulatory cuts in 2017. As soon as he announced those, there was a flurry of announcements of both reshoring and FDI (see chart). However, with the ensuing trade war and the business uncertainty that followed (for example, companies not knowing what the rules were going to be), reshoring fell off for a couple of years, picked up and even moved up through COVID-19. Reshoring then accelerated under Bidenomics, specifically with the Inflation Reduction Act, the CHIPS Act, etc. With hundreds of billions of dollars being thrown at the issue, companies announced factories with thousands of workers because there was so much incentive being given to them. But that fell off a little bit in 2023 as that largesse started to run out.”
Moser cited data gleaned from corporate surveys conducted by firms such as the Boston Consulting Group that demonstrates a continued desire to bring more manufacturing positions back to the U.S. Executives were asked questions such as: “Are you reshoring or are you planning to reshore?” The percentage answering positively, according to Moser, has gone from 7% or 8% back in 2012 to currently 80% or 90% more recently. “It’s been very consistent with the data that we’ve seen in terms of number of jobs,” Moser stated. “It really can’t get much higher than that.”
While this certainly seems encouraging, Moser cited one caveat: If a company says they’re reshoring, it does not mean they’re closing every factory off- shore and building all new factories here. Nor does it mean they’re getting rid of all their sources offshore and finding all new sources. “They couldn’t do that,” he stressed. “The U.S. manufacturing economy couldn’t handle that. But from what we’ve actually seen in terms of momentum, there’s still lots of potential to be achieved.”
While tax incentives provided by the U.S. government certainly offered a more welcoming environment for American companies looking to bring back manufacturing jobs to the States, it wasn’t the only driver. The elevation of the middle class in China, along with a subsequent rise in wages, gradually began to erode the advantage of cheaper production. “The reason that so much offshoring happened in the first place is the price difference—the manufacturing cost difference between the U.S., China and other countries,” Moser explained. “China’s prices are 30% lower than U.S. prices. Companies have fixated on that for years, and they did conclude for 10 years, 15 years that that was the obvious thing to do. Now they’ve started to realize that it wasn’t such a good thing, which is why the reshoring process has occurred.”
It’s important to note, Moser observed, that while more American companies are sourcing less and less product from China, it doesn’t necessarily mean that net-net the entirety of that shift in manufacturing is all coming back to America. In the flooring industry, for example, those U.S.-based companies that once did a hefty business with China have in recent years shifted that production to Southeast Asia, namely Cambodia, Vietnam, Thailand, Indonesia and the like. We’ve also seen American and foreign automakers produce more vehicles in Mexico with the intent to then sell those cars in U.S. markets or export overseas.
Might this dynamic shift once again if President-Elect Trump makes good on his promise to levy heavy tariffs on imports across the board? More specifically, Semenuk asked, “Will American COOs who considered opening a factory or plant south of the border now rethink that strategy in the wake of the U.S. election results?”
Moser offered this take: “My first priority is to bring manufacturing jobs to the U.S., but if I cannot do that, I’d much rather have to pull it out of Asia, specifically China, and move it into Mexico. For products coming out of Mexico being shipped to the U.S. has on average about 40% U.S. value-added content, whereas product coming out of China has about 5% U.S. content. Would I rather have 40% than 5%? All day long.”
While much has been made of the tensions with China on the trade front, Moser said we shouldn’t have tunnel vision when it comes to this issue. “If you look at the U.S. trade balance with our top 10 trading partners, we have trade deficits with nine of them. The only one with which we do not is the UK. In short, the U.S. is not competitive with almost every other country in the world.”
The reason why there’s been so much focus on China, Moser noted, has to do with that country’s vaunted military capabilities. “You have to get the U.S. competitive enough so it brings back work from everywhere if you want to strengthen America. This way it’ll be strong enough to compete with China and deal with them militarily if, God forbid, something actually happens. China used to be the hardest place to get the work from; now, it’s the simplest place to get the work from because of the geopolitical risk.”
Not without some downside
When past presidents have raised tariffs as a means to level the playing field (i.e., George W. Bush when he took on steel and aluminum imports), it hasn’t always netted the desired results. Economists the world over agree that exorbitant tariffs usually result in counter tariffs, which, in turn, drive up the costs of common household goods, particularly electronics, apparel, furniture, etc. This might give the new administration some pause in going too far on tariffs. Or, what has been argued in many circles, perhaps the threat of painful tariffs is simply a bargaining chip.
“If you look at a map of where most of the biggest reshoring announcements have been in the last three or four years, you’ll see that most of them are in the red states, in the states that went for Trump,” Moser noted. “Although President-Elect Trump said he’s going to pull the plug on all those things, i.e., the chips and the EV batteries and so on, he’s going to be hard-pressed to pull hundreds of thousands of jobs out of the states that just voted for him. So I think what’s already been announced and what’s already been funded is there, and the Biden administration is pumping as much money out as they can before Trump comes in. But for new money coming out after that, I believe Trump will be going a different route.”
Moser’s position on tariffs differs from established economists who say they are counterproductive. He said the key is not so much the tariffs in and of themselves, but rather the “implementation” and careful enactment of those tariffs. “I’m more in favor of tariffs than most economists,” he said. “It’s my view that the tariffs that we’ve done have not been well-designed. For example, Trump put tariffs on steel, and that helped our steel industry, but every company that uses steel to make cars and mechanical components are less competitive with their foreign competitors who now can buy steel for 10% or 20% cheaper. I think we’ve probably lost more jobs in the steel sector than we’ve gained in steel makers.”
If you’re going to do tariffs, Moser stated, it has to be universal on all products on all countries forever. “And if you’re going to do that, then my conclusion is you might as well have a ‘value-added tax,’ which applies to everything being imported, and it gives a subsidy to everything being exported, and it applies to all countries, all products, etc. The nice thing about a value-added tax is that almost all the other countries now have them, and therefore they can’t retaliate against us for doing to them what they’ve done to us for the last 30 years. This way you’re taxing consumption instead of investment, and it’s better to tax consumption so your economy will grow faster.”
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