Reshoring Initiative 2017 Data Report: Reshoring plus FDI job announcements up 2,800% since 2010

Introduction

In 2017 the combined reshoring and related foreign direct investment (FDI ) announcements surged, adding over 171,000 jobs in 2017, with an additional 67,000 in revisions to the years 2010 through 2016. This brings the total number of manufacturing jobs brought to the U.S. from offshore to over 576,000 since the manufacturing employment low of 2010. The 171,000 reshoring and FDI job announcements equal 90% of the 189,000 total manufacturing jobs added in 2017.

In 2017 announcements of combined Reshoring and FDI jobs were up 122% compared to unrevised 2016 totals and 52% compared to revised 2016 totals. We believe the huge increases were largely based on anticipation of greater U.S. competitiveness due to expected corporate tax and regulatory cuts following the 2016 election. Similar to the previous few years, FDI continued to exceed reshoring in terms of total jobs added, but reshoring has closed most of the gap since 2015.

This report contains data on trends in U.S. reshoring announcements by U.S. headquartered companies and FDI by foreign companies that have shifted production or sourcing from offshore to the U.S. The data is cumulative 2010 through 2017 and is for the U.S. only, unless otherwise noted.

Data Index

Reshoring Trends, Cumulative 2010-2017 Totals

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1. Reshoring + FDI Manufacturing Jobs, Cumulative 2007-2017

In 2017 job announcements due to reshoring and FDI grew at the fastest rate in history. The cumulative return of over half a million jobs since 2010 equals over 50% of the total increase in U.S. manufacturing jobs during that period.

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Reshoring and imports both increased in 2017

Progress is, however, relative. Reshoring and imports both increased strongly in 2017. In 2015 we determined that parity was reached between offshoring (calculated from any increase in imports) and returning jobs, indicating that the net bleeding of manufacturing jobs to offshore had stopped. In 2016, for the first time since the 1970, we reshored more jobs than we lost to offshoring. The U.S. had gone from losing net about 220,000 manufacturing jobs per year at the beginning of the last decade, to adding net 30,000 jobs in 2016.

While 2017 shows an even larger increase in reshoring job announcements, the U.S. also saw a simultaneous large increase in non-petroleum goods imports, up $91 billion from 2016. A large increase is typical for years when the U.S. economy is strong, but this change was nine times the increase from 2015 to 2016.

There is no measure of offshoring announcements or implementation. We did not observe a high rate of announcements of offshoring. We believe that the increase in imports was primarily due to increased consumption of the same products, rather than additional U.S. production being offshored. The increase in imports may also be explained by the following factors:

1. Higher volume of the same items: U.S. economy was the strongest in the developed world, drawing in more imports.

2. Higher prices for the same items: USD was down slightly and emerging market wages continued to rise, raising the $ cost of imports.

3. Impending tariffs: Appliance and solar panel imports accelerated in the fourth quarter in anticipation of higher tariffs.

When measured by our trade deficit of about $500 billion/year, there are still three to four million U.S. manufacturing jobs offshore at current levels of U.S. productivity, representing a huge potential for U.S. economic growth. Measured by our $700 billion non-petroleum goods trade deficit there are about five million still offshore.

2. Reshoring + FDI Job Announcements by Year

The fact that reshoring has been increasing at a similar rate as FDI since 2015 indicates that U.S. headquartered companies are starting to understand the same benefit to U.S. production that foreign companies have seen for the last few years.

We anticipate subsequent upward revisions of the 2017 totals. 2016 totals were increased by 47% in 2017 as new announcements from the earlier year were found or published later in the following year.

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3. Factors Cited for Reshoring + FDI

About 60% of companies decided to offshore based on comparing wage rates or ex-works prices. Much of the strength of the reshoring trend has been due to companies becoming familiar with a broad range of factors (costs and risks) they had previously ignored. Understanding the reasons other companies have given for reshoring helps companies to determine whether those reasons apply to them also.

The factors that influence reshoring and FDI are similar with the following exceptions. Reshoring places higher emphasis on Made in USA image, automation and re-design of the product. FDI places more emphasis on government incentives and skilled workforce. Since reshoring is almost all from low-wage countries, reshoring companies automate to make up for higher domestic hourly labor cost. Since most FDI is primarily from other developed countries, Made in USA is a less powerful sales argument. Shifting from Made in Germany to Made in the USA has less brand value than shifting from Made in China. Foreign companies can be recruited by all 50 states and often have larger projects, thus they receive more government incentives.

Negative Factors are the negative issues experienced offshore. Most of the issues are related to distance: freight, delivery, inventory, etc. Others are country specific: rising wages, IP risk, political instability, etc. Positive Factors are the values that attracted the company to their U.S. site and that they achieved here. Companies have consistently reported the positive domestic

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4 A broad range of costs and risks can be quantified using the Total Cost of Ownership Estimator®.

factors more often, probably because the companies place more value on demonstrating the wisdom of their current reshoring decision than on what went wrong with their earlier offshoring decision.

Factors that significantly increased year-over-year include: Automation, Additive Manufacturing, Image/Brand of Made in USA, Lead time, Proximity to customers, Tariffs, Impact on Domestic Economy, and Walmart. These changes reflect the large economic, political, cultural and industry trends, briefly summarized below.

• Automation and Additive manufacturing reflect the awareness of the importance of improving process technology.

• Impact on Domestic Economy suggests that companies are starting to feel pressure and awareness of the impact of their sourcing decisions on society.

• Tariffs: Expectation of increased tariff barriers.

• The perceived value of Made in USA branding helps balance total cost in favor of reshoring.

• Lead time and Proximity to Customers demonstrate the universal logic of cost savings by producing near the consumer.

• Lastly, Walmart’s $250 billion initiative to source more U.S. products is generating measurable impact. Given the focus on impact, and the continued rising consumer preference for Made in USA, we are amazed that more retailers have not taken similar visible initiatives.

Freight and delivery showed the largest declines, probably becoming less relevant due to low fuel prices and improvements in management from IoT.

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4. Reshoring + FDI by Industry

Only products that have been offshored/imported can be reshored. Thus, the products least suitable for offshoring never left, such as heavy, high volume minerals, high mix/low volume items or customized automation systems.

The most active reshoring is by those that left and probably should not have done so, including machinery, transportation equipment and appliances. As the data indicates, reshoring is focused on products whose size and weight, e.g. transportation equipment, or frequency of design change/volatility of demand, e.g. apparel, suggest that offshoring never offered great total cost savings.

FDI is more heavily weighted towards Transportation Equipment because of the ongoing investment in automotive assembly plants and related suppliers. It also benefits the most from government incentives.

In 2017, Apparel moved from 6th to 3rd place, continuing its momentous climb; and Medical equipment rose from 14th to 9th, with most patients and doctors preferring domestically made implants and diagnostic equipment. Plastics and Rubber Products fell from 3rd to 5th. Fabricated metal products dropped from 4th to 10th.

In 2012 BCG (Boston Consulting Group) predicted seven industries that would tip back to U.S. production by 2015. Six of their seven are in our top 10 industries. The four of our top ten industries not included in the BCG study are: apparel, doing better than expected as retail tries to deal with stockouts and overstocks; chemicals which are driven by shale gas; medical equipment and wood/paper products.

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5 The table is sorted by industry, as defined by three-digit NAICs code. We also break out several active industries at the four
and five-digit levels. To get complete data at the three-digit level, add these industries into the relevant three-digit category.

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5. Reshoring + FDI by Technology Level

It is generally agreed that manufacturing High-tech products is more desirable than Low-tech: more investment, more R&D, higher pay, less risk of loss to low wage countries, etc. Currently, reshoring and FDI are adding more High-tech jobs than Low-tech. This trend is important since the U.S. has a trade deficit in High-tech products. While High and Medium-High tech are creating the lion’s share of jobs, there has also been a recent uptick in Low-tech companies, due to increases in apparel, wood, and plastic and rubber industries. Reshoring is stronger in High-tech than FDI which is stronger in Medium-High due to the high % of transportation equipment in FDI.

We encourage the U.S. to become competitive on all tech levels to balance the trade deficit and employ a broader range of workers. High-tech products represent too small a percentage of our consumption to allow the U.S. or any country to focus only on High-tech. The challenge is to upskill our workforce so that more of them can work on more highly automated production of lower-tech products.

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6 Tech level ratings are based on classifications derived from: https://www.oecd.org/sti/ind/48350231.pdf,
and http://www.cbs.gov.il/publications12/economic_activities11/pdf/intensity_e.pdf

6. Top 20 Countries From: Reshoring, FDI and Combined

Reshoring is 62% from China, broadly distributed across industry categories. FDI is heavily from Germany (20%) and Japan (16%), both driven by transportation equipment, and more recently China (20%) in a broad range of industries. They have listened to and learned from our message more than the U.S. companies have.

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7. Reshoring + FDI by International Regions From

Most reshoring is from Asia. FDI used to come primarily from Western Europe, but is now about equally from Asia, due mostly to the increase in Chinese investment. Compared to last year’s cumulative data for reshoring + FDI combined: Asia gained 3%; North America gained 1%; and Western Europe lost 4%.

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8. Reshoring + FDI Cases by State

The Southeast and Texas get the most and, on average, the largest projects, presumably due to right-to-work laws and typically lower property costs, wage rates, taxes and energy costs. The Midwest is second based on reshoring to its strong industrial base. Michigan moved up from #7 to #3 due almost entirely to FDI in Transportation.

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9. Reshoring + FDI by U.S. Regions

The South and Midwest continue to dominate, with a fractional shift to the Midwest and west. From cumulative 2016 to 2017 there was a 5% decrease of market share in the South, 3% increase in the Midwest, 2% increase in the West and the Northeast remained the same.

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10. Nearshoring

Nearshoring from Asia to Mexico or Canada is better for the U.S. than work staying further offshore. For example, exports from Mexico to the U.S. have 40% U.S. content whereas exports from China have only 5% U.S. content. Transportation equipment and appliances are the most frequent industries to nearshore. Currently more companies nearshore to Mexico than to Canada due to greater cost advantages. Our data is not as complete for nearshoring, which is less often reported in U.S. news sources.

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11. 2018 Projections

There is a substantial pipeline of huge projects that have been announced but are not firm enough to be included in our database. These projects include: Foxconn in Wisconsin, Apple, SoftBank and numerous shale gas refinery projects. Some of these may prove to be just politically motivated speculation following the 2016 election, while others will likely come to fruition.

More companies mentioned Impact on Domestic Economy as a factor in their decision in 2017 than in 2007 thru 2016 combined. Companies are starting to appreciate that their continued success requires their home market to be strong.

Like 2017, 2018 results will depend largely on actual policy changes (taxes, regulations, trade, skilled workforce, tariffs, etc.) to be implemented by the administration and corporate responses to those changes. The 2017 upswing in activity is in response to anticipation of such changes, which are expected to continue to positively impact U.S. competitiveness. Here are some factors that may impact 2018 relative to 2017:

Headwinds likely to slow reshoring and FDI:

1. The job announcements in anticipation of tax and regulatory reductions may have tapped the immediate opportunities.

2. Mid-term elections could shift control of the U.S. House and Senate, resulting in reduced business optimism.

Tailwinds likely to help reshoring and FDI:

1. How corporate cash flow from repatriation and tax cuts are utilized: investment, training and hiring are tailwinds. Stock buybacks are much less so.

2. Continued decline in the USD due to ballooning budget deficits, despite rising interest rates

3. World growth as strong as the U.S. will make other markets more attractive for offshore suppliers leaving domestic suppliers with less competition to supply the U.S.

4. Continued increases in usage of TCO (Total Cost of Ownership) instead of price in making sourcing decisions.

5. Continued reductions in regulations.

6. Continued improvement in skilled workforce programs.

7. Environmental consciousness. Domestic supply chains are more transparent than offshore and less polluting, cutting the world’s environmental impact by up to 50%, depending on the product.

8. Sustainability will continue to increase as a corporate strategy and will help drive reshoring and FDI.

9. Recent increases in U.S. investment could lead to greater productivity and innovation.

Ambiguous

1. Higher interest rates will tend to raise the value of the USD (headwind) but will surely increase the carrying cost of inventory (tailwind), which is increased by offshoring.

2. Possible actions on NAFTA, tariffs, trade with China, etc. Likely to be favorable but could be temporarily disruptive.

3. Oil prices. Higher prices increase freight costs. (tailwind).

There is probably a 12-month lag time between the announcement or implementation of policy changes and a significant response in the trends. Best guess forecast: 2018 reshoring and FDI will be flat to slightly up vs. 2017’s record level of 171,000 mfg. jobs announced. Our skilled workforce supply is not yet ready to support a much higher rate of increase.

Conclusion

The reshoring plus FDI announcements in 2017 are up about 2800% from 2010, and equal about 90% of the total increase in manufacturing jobs in 2017, representing a major macro-economic impact. This data 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. Policy makers can use the continued successes as proof that it is feasible to bring millions of jobs back. They can use the measured parameters to define local and national strategies to improve competitiveness to accelerate the trend.

Continuation of the trend depends on companies reevaluating their offshoring. The Reshoring Initiative offers many tools and resources, which are listed below.

Reshoring Initiative Resources

Total Cost of Ownership Estimator® - Free online tool that helps companies account for all relevant factors — overhead, balance sheet, risks, corporate strategy and other external and internal business considerations — to determine the true total cost of ownership. Can be used by companies to make smarter sourcing decisions and to sell against imports. Call on the Reshoring Initiative for help using this and other tools.

Competitiveness Toolkit - Designed to quantify and select the optimal national policy changes to bring back a desired number of jobs.

Import Substitution Program (ISP) - Helps manufacturers, trade associations, equipment sellers and economic development organizations identify and quantify the major relevant importers and convince them to reshore. Also helps to identify supply chain gaps to be filled by FDI.

Corporate Social Responsibility Estimator - Provides a model for estimating sourcing decisions’ impact on pollution and on the domestic economy.

Reshoring Library – You can use Advanced Search to identify companies that have reshored or done FDI in relevant industries or regions.

Annual Reshoring + FDI Data Report – tracks the drivers, impact and momentum of the trend.

Data refinement is ongoing:

• Companies, industry associations, states, EDOs and others are encouraged to send us information on reshoring and FDI cases. Send us links to articles and announcements, or go to the Reshoring Initiative’s database entry form.

• To see a full list of companies in the database click here.

• If your company is listed, email us to request your company’s data to review, edit and return. Please include your company name and detailed contact info.

• Supplements to this report will be published and posted at www.reshorenow.org as they become available.

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