CHICAGO — U.S. companies in 2019 sourced substantially fewer manufactured goods from 14 traditional Asian trading partners, apparently as a direct result of aggressive U.S. government trade policies, according to the seventh annual Kearney US Reshoring Index.
The ongoing trade war sent the Reshoring Index to a record high in 2019.
The Reshoring Index compares US domestic manufacturing gross output to the level of manufacturing imports from 14 traditional Asian low-cost countries (LCCs): China, Taiwan, Malaysia, India, Vietnam, Thailand, Indonesia, Singapore, Philippines, Bangladesh, Pakistan, Hong Kong, Sri Lanka, and Cambodia.
Kearney, a global management consulting firm that calculates the index, attributes much of the big 2019 shift to a 17 percent decline in US imports of manufactured goods from China, which has long been the leading choice for offshore production. Intriguingly, manufactured imports from Vietnam and Mexico both increased last year, evidence that US companies were starting to significantly adapt their sourcing strategies even before the COVID-19 crisis began disrupting global supply chains early in 2020.
Big Jump in Reshoring Index
In 2019, US manufacturing was steady while imports from the 14 Asian trading partners notably declined. Imports of manufactured goods from the 14 Asian LCCs shrunk to $757 billion from $816 billion in 2018—a 7.2 percent decrease—while US domestic manufacturing output was $6,271 billion in 2019, virtually unchanged from 2018.
Consequently, the US market imported just 12.1 cents worth of offshore production from the Asian LCCs for every $1 of domestic manufacturing gross output in 2019, nearly a full percentage point decrease in corresponding imports from the previous year.
The US Reshoring Index is expressed in basis points (1 percent change = 100 basis points). A positive index number indicates net reshoring. The precise 2019 Reshoring Index calculation is: 2018 import/domestic manufacturing ratio of 13.058 percent minus corresponding 2019 ratio of 12.077 percent = 0.98 change, or 98 bps. The resulting Reshoring Index of 98 is by far the highest yet registered. The previous index high was 11 bps in 2011. The index came in as low as -112 bps as recently as 2015.
US trade policies also appear to be changing trade dynamics among and between the various countries exporting manufactured goods to the US. While US manufacturing imports from China declined, imports from the other Asian LCC countries increased by $31 billion in 2019. Similarly, manufacturing imports from Mexico rose $13 billion.
“Much of China’s loss was Vietnam’s gain,” said Patrick Van den Bossche, Kearney partner and co-author of the study. “Of the $31 billion in US imports that shifted from China to other Asian LCCs, almost half (46 percent) was absorbed by Vietnam, which exported $14 billion more manufactured goods to the US in 2019 than it did in 2018.”
“The door for these insurgents was clearly opened by ongoing US–China trade disputes, as their gains were mainly in product categories impacted by tariffs,” observed Yuri Castano, Kearney manager and co-author of the study. “Apparently, the trade war jolted US companies to start rethinking and reshaping their supply networks.”
Costs, risk and resilience
“2020 dawned with a disruption of a new order of magnitude―COVID-19,” noted Brooks Levering, Kearney partner and co-author of the study. “We anticipate that the harsh lessons of this crisis will compel companies to go much further in rethinking their sourcing strategies― indeed, their entire supply chains.”
“Three decades ago,” Van den Bossche observes, “US producers began manufacturing and sourcing in China for one reason: costs. The US–China trade war brought a second dimension more fully into the equation―risk―as tariffs and the threat of disrupted China imports prompted companies to weigh surety of supply more fully alongside costs. COVID-19 brings a third dimension more fully into the mix, and arguably to the fore: resilience―the ability to foresee and adapt to unforeseen systemic shocks.”
“The current crisis is exposing vulnerabilities that cannot be addressed with short-term fixes and minor tinkering,” Levering adds. “Companies can build more resilience into their supply chains by ensuring they can nimbly sense and pivot in response to unexpected demands and disruptions. This is the key to providing customers the products they need, particularly during times of crisis.”