Reshoring U.S. Manufacturing: Key Decision Factors for Businesses

Over the past two decades, U.S. manufacturing has undergone significant shifts due to globalization, advances in automation, and evolving economic policies. Many companies initially offshored production to take advantage of lower labor costs in countries like China, Mexico, and Vietnam. However, in recent years, a growing number of businesses have been reconsidering this strategy and evaluating whether reshoring—bringing manufacturing operations back to the U.S.—is the right move.

The decision to reshore is complex, influenced by a combination of economic, operational, geopolitical, and technological factors. The size of the company and the industry in which it operates play a crucial role in determining whether reshoring is a viable and beneficial strategy. This article explores the key decision factors businesses must consider when evaluating reshoring, supported by relevant data, case studies, and industry-specific insights.

1. Economic and Financial Considerations

A. Labor Costs and Productivity

Historically, labor costs have been a primary reason for offshoring. According to the U.S. Bureau of Labor Statistics (BLS), average manufacturing wages in China remain significantly lower than in the U.S., but the gap is narrowing. In 2000, Chinese manufacturing wages were about 5% of U.S. wages; today, they are closer to 30%, with an upward trajectory. Additionally, labor laws and rising living standards in offshore locations have contributed to higher costs.

However, wages alone do not tell the full story. U.S. worker productivity remains one of the highest in the world, with manufacturing output per worker significantly exceeding that of many low-cost labor countries. For example, the National Association of Manufacturers (NAM) reports that U.S. manufacturing output per worker is more than twice that of China. Advanced automation, robotics, and AI-powered production systems further enhance productivity, potentially offsetting labor cost differences.

B. Total Cost of Ownership (TCO)

Beyond labor, businesses must evaluate the total cost of ownership (TCO), which includes logistics, tariffs, quality control, intellectual property risks, and supply chain resilience. The Reshoring Initiative, a non-profit organization that tracks reshoring trends, estimates that when all these factors are considered, about 20–30% of offshored manufacturing is no longer cost-effective.

For instance, a U.S.-based automotive supplier might initially find China attractive due to lower wages, but hidden costs—such as expensive quality control measures, long shipping times, and supply chain disruptions—can make domestic production more cost-efficient.

C. Tax Incentives and Government Policies

Federal and state governments have been increasingly offering incentives to bring manufacturing back. The 2022 CHIPS and Science Act, for instance, allocated $52 billion in funding to boost domestic semiconductor manufacturing. Similarly, the Inflation Reduction Act provides subsidies for industries such as clean energy, battery production, and electric vehicles. These incentives significantly impact the cost-benefit analysis for reshoring in industries with high capital investment.

State governments also provide tax credits, training grants, and infrastructure support. For example, South Carolina and Tennessee have attracted major manufacturers like BMW and Nissan through aggressive incentive programs.

2. Supply Chain Stability and Risk Mitigation

A. Impact of Global Disruptions

COVID-19, geopolitical tensions, and trade wars have exposed vulnerabilities in global supply chains. A 2022 survey by McKinsey found that 71% of companies experienced supply chain disruptions that led to significant revenue loss. Dependence on foreign suppliers, particularly in critical sectors such as semiconductors and pharmaceuticals, has led many companies to rethink their reliance on offshore production.

The 2021 semiconductor shortage, which halted automotive production worldwide, is a case in point. General Motors, Ford, and other automakers had to suspend production due to a lack of microchips, prompting new investments in domestic semiconductor plants by companies like Intel and TSMC.

B. Logistics and Transportation Costs

Shipping costs have risen dramatically in recent years, partly due to global container shortages, port congestion, and higher fuel prices. The cost of shipping a 40-foot container from China to the U.S. West Coast surged from around $2,000 in 2019 to over $10,000 in 2021. While these costs have somewhat stabilized, businesses remain wary of future volatility.

Reshoring reduces reliance on complex global logistics, shortens lead times, and enhances just-in-time (JIT) inventory management. Domestic manufacturing also minimizes customs delays and regulatory risks associated with international trade policies.

3. Industry-Specific Considerations

A. Technology and High-Skill Industries

Industries that require advanced technology and skilled labor—such as aerospace, defense, semiconductors, and medical devices—are among the most likely to reshore. The U.S. excels in innovation, intellectual property protection, and high-precision manufacturing, making domestic production more attractive for these sectors.

For example, Boeing has maintained significant U.S. production due to stringent quality standards and national security concerns. Similarly, Intel is investing billions in new U.S. semiconductor fabs to reduce dependency on Asian suppliers.

B. Automotive and Consumer Electronics

The automotive industry has been actively reshoring, driven by the push for electric vehicle (EV) production. Tesla, Ford, and GM are investing heavily in U.S.-based battery plants. However, consumer electronics remains a challenging sector for reshoring due to its reliance on Asian supply chains for components like displays and circuit boards. Apple, for instance, has taken steps to diversify production beyond China but still relies on Taiwan and Southeast Asia for key parts.

C. Apparel and Low-Cost Manufacturing

Reshoring in low-cost industries like apparel is less common due to high labor intensity. However, automation and nearshoring (moving production to nearby countries like Mexico) are emerging trends. Companies such as Nike and Adidas are investing in automated U.S. factories, but traditional apparel manufacturing remains largely offshore.

4. Workforce Availability and Skills Gap

A. Labor Shortages and Training Needs

One challenge for reshoring is the shortage of skilled manufacturing workers. The NAM predicts that the U.S. will have 2.1 million unfilled manufacturing jobs by 2030. Businesses must consider whether the local labor market can support their production needs.

To address this, companies are partnering with community colleges, vocational schools, and apprenticeship programs. Siemens, for example, has developed a successful apprenticeship program to train workers in advanced manufacturing.

B. Automation and AI Integration

Reshoring efforts increasingly depend on automation to offset labor shortages and costs. Advanced robotics, AI, and smart factories enable companies to maintain competitiveness while reducing dependency on manual labor. Companies such as Tesla and Foxconn are leading examples of integrating automation into U.S.-based production.

Conclusion: Weighing the Pros and Cons

The decision to reshore is multifaceted, requiring careful evaluation of financial, operational, and strategic factors. Companies must weigh cost savings from offshore production against risks like supply chain disruptions, rising foreign labor costs, and geopolitical uncertainty.

For large firms in high-tech industries, reshoring is often a strategic move to ensure quality, security, and supply chain resilience. Small and mid-sized manufacturers may benefit from reshoring if they leverage automation and government incentives effectively. However, industries with low margins and high labor dependence must carefully assess whether nearshoring or hybrid models provide a better alternative.

Ultimately, reshoring is not a one-size-fits-all solution. Companies must conduct thorough cost analyses, explore technological advancements, and consider long-term market trends before making a decision.

Further Research and Resources

For businesses evaluating reshoring, the following resources provide in-depth insights and tools:

• Reshoring Initiative (reshorenow.org): Offers TCO calculators and industry case studies.
• National Association of Manufacturers (nam.org): Provides reports on U.S. manufacturing trends and workforce development.
• McKinsey & Company (mckinsey.com): Publishes research on global supply chain risks and reshoring strategies.
• U.S. Bureau of Labor Statistics (bls.gov): Tracks manufacturing employment, wages, and productivity data.

Reshoring is an evolving strategy that requires businesses to remain agile and informed. With the right planning, it can provide long-term competitive advantages in an increasingly uncertain global economy.

Join the Strategic Value+ Solutions Collaborative for the Free U.S. Manufacturing Webinar Event Featuring Harry Moser

Your hosts are Brian McCollough - MBA, CEPA?, CMAA? , Maria L. Perez , Ruoyu Loughry . Roy Dickan , Mike Liu , William Feder , Bill Schweber , Justice Darko, PMP , Steven Shrinsky and Nelinia (Nel) Varenas, MBA

Our guest speaker is the distinguished Founder and President of The RESHORING INITIATIVE , Harry Moser. This timely and high-powered webinar will be live streaming Wednesday, March 19th, 11am PST to 12pm PST. Learn more and register for the U.S. Manufacturing Nexus Webinar Event by clicking here: https://strategicvalueplus.com/webinar-registration .

"Why Reshoring Matters for Our Economy and Our National Security" with Harry Moser, Founder and President of The Reshoring Initiative

RESHORING INITIATIVE Harry Moser #additivemanufacturing #3dprinting #reshoring #domesticsourcing