Manufacturing bounces back

America was once a manufacturing juggernaut. The U.S. had the know-how and the workforce to build just about anything the world required. Americans produced the arsenal that won two world wars and the tools that ushered us into the internet age.

Things changed in the 1980s. Low-cost foreign competitors, often subsidized by their governments, began to undercut domestic producers’ prices. Our own labor costs rose, and the failure of many domestic manufacturers to modernize their facilities led to plant closures.

I live in Pittsburgh and witnessed firsthand how that city went from being the steel manufacturing capital of the world to the epicenter of the Rust Belt (thankfully, my city bounced back and reinvented itself as a tech center for robotics).

In the years that followed, much of our manufacturing was outsourced to low-wage Asian countries—particularly China. Transportation was relatively cheap, and the labor savings more than offset the long-distance shipping costs. Companies pursued that strategy for decades until several issues arose that lessened China’s appeal.

First, we saw how China’s own economic growth led to higher wages for Chinese workers, reducing the cost advantages of offshoring. Politics also entered the picture, with new tariffs imposed on Chinese goods. And finally, the pandemic disruptions drove importers to start looking for ways to reduce their reliance on lengthy supply chains.

As a result, we’ve seen manufacturing coming home, either reshored back to the U.S. or nearshored to Mexico or Canada. This just makes sense, as being closer means lower transportation costs, increased flexibility, and more reliable supply chains.

Underscoring just how much manufacturing has returned to North America, Mexico replaced China this year as the United States’ largest trade partner. Canada is number three.

Global management consulting firm Kearney recently released its 2024 Reshoring Index, which offers some insights into these trends. It shows that overall imports from Asia to the U.S. dropped from $1,022 billion in 2022 to $878 billion in 2023. Imports from China alone declined 20% from 2022 to 2023. Meanwhile, imports from Mexico grew by 32%.

The report also shows that Americans are buying more goods made in America. Kearney’s U.S. Self-Sufficiency Index had been gradually declining between 2013 and 2020. But since the pandemic, that trend has reversed, with the index increasing 5% from 2022 to 2023.

Will we see manufacturing return to the glory days of the last century? Maybe not, but whatever we can do to boost our supply chain resiliency is certainly a step in the right direction.