For more than a decade, US manufacturing has achieved growth in employment, output, the number of manufacturing establishments, and investment to expand or construct new facilities. This strong growth was driven by a desire to derisk supply chains and establish facilities closer to US customers. Increased supply chain volatility in recent years has led organizations to shift their supply chain strategy from cost minimization to a focus on balancing cost with resilience.
Some manufacturers have reconfigured supply chains by reshoring portions of production, by nearshoring—leveraging the USMCA free trade agreement (see Ch.2) to source more from Mexico and Canada—and by growing trade with countries such as India and Vietnam, which offer cost advantages.
And this trend is likely to continue: Over 70% of CEOs plan to alter their supply chains over the next 3-5 years.
President Trump’s policy priorities include cutting taxes, reducing regulations, lowering energy costs, and bolstering fair trade, all of which could accelerate continued investment in the US manufacturing sector. The policies could also drive a shift in supply chain strategy by prioritizing reshoring while potentially disrupting recent nearshoring and global sourcing trends. Tariffs comprise a component of this economic strategy.
1. US manufacturers import a variety of products, parts, and raw materials from around the world, and supplemental tariffs levied on these items could impact supply chains, costs, and the industry’s profitability.
2. Economically viable opportunities for reshoring production to the US are likely to be higher-value, complex products with strict quality standards, produced with technologically advanced, higher-capital intensity processes, and a workforce with higher-level skills.
3. For labor-intensive or lower-value goods, it might not be as economically viable for manufacturers to reshore. Instead, manufacturers may diversify their supply chains by seeking suppliers in countries that offer labor cost advantages—and minimize the long-term risk of supplemental tariffs, trade tensions, and geopolitical friction.
4. Digital tools and technology will play an important role in any supply chain strategy. For example, simulation, supply chain planning tools, and enhanced visibility can help mitigate risks in global supply chains.
Classroom discussion questions:
- What are the advantages and disadvantages of tariff adjustments?
- How are nearshoring and reshoring impacted?
Part of the reshoring equation needs to be the investments that have already been made. For example, the auto industry has invested heavily in manufacturing vehicles in Mexico. They are not going to walk away from that investment and move production to the US. This would also be a long term strategy to move production. Building a new facility would take 3 to 5 years. During that time a mid term election will be held followed by a Presidential election. All of this could change depending on the results of those elections. There is also a lack of Skilled Labor which is not lacking in Mexico or Canada. Being in Detroit moving production back to the US is unrealistic.