Reshoring and foreign inbounding: A goldilocks moment for US manufacturing?

Near-shoring or reshoring is becoming an increasingly attractive move for US manufacturers. Likewise, the US is becoming a more viable option for inbounding foreign companies. The global supply chain snarls triggered by the pandemic prompted many manufacturers to rethink their global footprint. Now, there are additional motivations to establish – or expand – footprints in the US, with numerous forces and conditions at play.

Geopolitical risks (trade tensions, global energy concerns and unrest) and rising labor and shipping costs have changed the calculus of far-flung sourcing. Meanwhile, a number of federal and state policies and incentives – chiefly the Infrastructure Investment and Jobs Act, the Inflation Reduction Act and the CHIPS Act – are making domestic production a more viable and secure option for many manufacturers across sectors, especially given provisions that require some manufacturers to provide tax credits and rebates to customers.

Realigning a global footprint strategy – especially one that may have been in place for years or even decades – can be an onerous and daunting task, one freighted with numerous financial and nonfinancial considerations. Yet for many US manufacturers, now is a propitious moment to reassess the total costs of manufacturing, which extend well beyond financial operating costs, and account for supply-chain resiliency and control and even risks surrounding forced labor.

We see the intensifying trend to inbound to the US as a part of a larger gravitation toward regionalization of global footprints to gain greater control over – and visibility into – supply chains as well as to better satisfy local or regional demand. Additionally, reshoring to the US, for some companies, could contribute to ESG initiatives and goals which are becoming increasingly important to corporate boards.

Four key initial considerations when reshoring to the United States

Over the decades, a chief rationale for globalization of manufacturing has been driven by cost savings captured by operating in low-cost countries (LCCs). But market changes, labor and logistics/transportation costs and new policies incentivizing stateside manufacturing are reshaping the landscape quickly. The existing 25% tariff on Chinese-made goods, for instance, has also made sourcing in China less economically attractive. Here are four areas you should examine closely when carving out a reshoring strategy.

1. Federal and state incentives

Recent legislation, including the Infrastructure Investment and Jobs Act, Inflation Reduction Act and the CHIPs Act, provides tax breaks and subsidies for enterprises across many sectors – from electric vehicles and charging infrastructure to large engineering and construction projects to makers of microprocessors. There are also many state-level policies and incentives to support US-based manufacturing. These and other moves seem to auger the reinvigoration of a long-dormant US industrial policy.

2. Supply-chain resiliency

Manufacturers buffeted by supply-chain disruptions during the COVID-19 pandemic understand the need to limit their exposure to other potential high-impact global events. Also, complex needs and fluctuating demand often require the shorter lead times that more flexible, responsive (and, therefore, regional) supply chains can provide.

3. Labor/logistics trade-off

The advantages of establishing a foothold in LLCs are diminishing as the availability of talent has tightened and labor costs have risen. Onshoring can also free manufacturers from what can become a labor cost arbitrage trap, and provide greater long-term visibility and control of costs. Just consider that China’s wages have increased 83% in the last decade, compared to a 3% increase in US wages over the same period.1,2 At the same time, global logistics – and their attendant costs – may be considered less reliable, predictable and more costly. These and other factors can also lead to higher-than-preferred inventory on hand and complex warehousing requirements.

4. Geopolitical risks, governmental policies

Unpredictable events such as pandemic-related lockdowns and war also introduce risk and uncertainty for manufacturers in affected regions. Additionally, US tax and duties policies can also have sudden impacts on businesses and obscure a company’s long-term vision of doing business in affected countries.

A case in point: Reshoring electric vehicle (EV) production

Building out a domestic EV manufacturing footprint – in part driven by federal incentives to do so – is a prime example of how reshoring can be leveraged by automakers. EV-related manufacturing is being driven inbound due to the need for greater resiliency in sourcing and production at a time when historically high amounts of investment are at stake. Just consider that, since 2020, companies have invested nearly $85 billion in manufacturing of electric vehicles, batteries and EV chargers in the US. The Infrastructure Investment and Jobs Act, for example, earmarks investments of $14.5 billion to support the development of a national EV-charging network and battery materials processing and battery manufacturing.

As auto OEMs and their suppliers undergo an historic transformation toward CASE technologies, the industry is also in the position to build out a supply chain that can help support that transformation better. For example, situating battery cells production near assembly plants not only provides more control of the supply chain by enabling shortened lead times, but also helps prevent impacting or degrading the sensitive components.

Meanwhile, states are aggressively competing to attract EV and battery production with incentives and subsidies. Indeed, we are now seeing the establishment of a “battery belt” in the Midwest and Southeast to help support EV production.

With so much at stake, selecting the viable site location can be crucial

US manufacturers (and even some non-US manufacturers) mulling a relocation back to or near US shores are well aware of the potential risks that doing so could carry. They’re also well aware that it’s a decision that will typically have long-term effects with high financial stakes. Therefore, an efficient and thorough vetting and analysis of the options on the table is often critical to honing in on the right onshoring site selection for the right reasons.

For any given company looking to reshore, there could be hundreds or even thousands of potential viable locations, and winnowing that list down to a final winner can be extremely difficult – if not impossible – using traditional methods. With this in mind, there are a number of things companies should assess, using geospatial tools, when embarking on an onshoring site-search journey in order to help score sites and find relative strengths and weaknesses of their candidates.

Property data: What is the site’s contiguous acreage available for development? What are the zoning laws? What is the access to utilities, and is it sufficient and timely? What environmental risks exist, such as floodplain exposure? What permits are required?

Operational requirements: What is the degree of availability of raw and finished building materials needed on-site? Are there restrictions on building size?

Labor market: What is the production labor supply and cost within a commutable distance to the site? Will you be competing for labor?

Proximity to transport infrastructure: How close is the site to major transportation corridors such as ports, interstate highways, rail/freight and intermodal hubs?

Network optimization: Assess whether the site is within an industrial ecosystem. What is its proximity to both suppliers of raw materials and finished goods – and to the company’s customers?

Credits and incentives: What incentives (tax credits, rebates, loan guarantees) are attached to the site, and what requirements are needed to be eligible for these incentives?

1. The National Bureau of Statistics of China
2. The US Bureau of Labor Statistics

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Carlos Thimann

Principal, Automotive Supply Chain, Strategy& US


Erika Ryback

Partner, Real Estate Strategy and Transformation, PwC US


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