US reshoring efforts undermined by record Asian imports

20 July 2018 4 min. read
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An A.T. Kearney report on US manufacturing sector reshoring has revealed imports from the country’s 14 largest low-cost country trading partners in Asia rose by $55 billion last year to reach an all-time high. 

In its fourth annual Reshoring Index on the US manufactured goods sector, the global strategy firm A.T. Kearney has highlighted the sharp rise last year in imported goods from the United States’ primary lost-cost Asian trading partners, jumping 8 percent as the largest twelve-month increase since the economic recovery of 2011. In absolute terms, the worth of imports climbed a whopping $55 billion in 2017, contributing to the $118 billion or 19 percent total increase since the consulting firm’s inaugural reshoring analysis in 2013.

According to A.T. Kearney, the firm initially set about the reshoring research to reach beyond the politically-spun anecdotal reports and establish a set of substantiated facts, noting that even the best available research at the time was more focused on ‘promulgating models of future reshoring than on accurately assessing reality.” Its objectives, the firm says, were simple; find out what US manufacturers are doing and separate the hype from the reality.

Asian import growth into the US – 2011 to 2017

The conclusion, too, is a straightforward one; despite the high-profile cases often trumpeted on Twitter, US reshoring continues in A.T. Kearney’s words to be little but a drop in the bucket. Simply, although the US recorded strong growth last year in gross manufacturing output, the gains were easily outstripped by the much faster growing imports. In total, across the four years of the index, the manufacturing growth figure for the US has been a 1 percent rise of $81 billion – against the combined $118 billion 19 percent increase in imports from its 14 chief Asian markets.

The proportion of US reshoring has become even smaller then in relative terms. And the figures could worsen yet, with the authors of the report contending that the US president’s $1.5 trillion package of tax cuts signed into law at the end of last year are likely to exacerbate the gap. “The combination of an overstimulated economy and a jobless rate that is the lowest it has been in more than a decade will likely result in even more imports when domestic manufacturing can’t keep up with growing consumer demand,” the report states.

Of the 14 Asian countries cited in the report as traditional offshore trading partners – China Taiwan, Malaysia, India, Vietnam, Thailand, Indonesia, Singapore, the Philippines, Bangladesh, Pakistan, Hong Kong, Sri Lanka, and Cambodia – China by far remains the largest importer to the States in monetary terms, accounting for $494 billion of the $751 billion 2017 total, or roughly two thirds, at plus 9 percent – behind only the growth rates of the Philippines, Hong Kong and Cambodia.

Rising imports to US from Asian offshoring countries

According to the study methodology, this has seen the highest import ratio (in short, 12.4 cents worth of imports for every $1 of US gross domestic manufacturing output = 12.44 percent) recorded since the firm begun its analysis in 2014, and compares to 12.17 percent last year and 9.15 percent in 2008, after a slight decline in 2016. The authors cite several reasons for the continued trend away from reshoring, among them the ongoing benefits of cheaper labour costs, the significant offshoring investments already made which aren’t easily unwound, and the shortage of skilled US labour in the increasingly technology-driven manufacturing sector.

The author’s finish on a cautionary note, that ‘although tariffs and political posturing could impact and potentially change the direction of the reshoring trend, there are many potential futures,’ – such that the US isn’t necessarily given as the most logical destination for relocation. The report concludes; “Even though 2017 and the roaring first half of 2018 are providing optimism for the US manufacturing sector, it will take more than political headlines to effect any meaningful and lasting change. As a result, any tariffs put on imports from those low-cost countries will, in the short run, only be felt in American consumers’ wallets.”