Reshoring: Hit or Miss?
Reshoring: Hit or Miss?
As the first wave of the COVID-19 pandemic began to wane in the US, many people began to proselytize about a surge of new investment coming from companies seeking to re-shore their operations to the United States. The theory being that the COVID outbreak in China highlighted the significant supply chain disruption that occurs when an economy is so reliant on another country for its inputs.
At the time, I was somewhat skeptical about the level of this “storm surge” of new Foreign Direct Investment (FDI) and re-shoring activity. After all, this surge has been predicted for the past 4 years – increased tariffs on Chinese goods, renegotiation of NAFTA, yada, yada, yada. Yet, FDI and re-shoring have remained relatively flat over the past few years. I did not jump on the re-shoring bandwagon. I believed (and still do) that it would be, well, same song, different chorus.
Fast forward to October 2020, and the US is on the brink of its second wave of COVID-19 cases. Many states are seeing week-over-week increases in new cases and hospitalizations. In addition, we have a presidential election fast approaching and, for the first time in our history, there are legitimate questions about the outcome – when will we know who won and how will that victory be decided?
When you add these two factors together, suddenly, an investment in the United States may not seem as prudent as it once did.
Meanwhile, in China, the virus is largely under control due to mandatory testing, strict quarantine rules and city-by-city lockdowns. The economic recovery in China has begun in earnest. China has reported 4.9% growth in the third quarter compared to the same time in 2019 and real estate investment is climbing at double digit rates.
To be sure, there are reasons to question the veracity of numbers coming out of China but on the surface there is also reason to give credence to this news. The American Chamber of Commerce in Shanghai released their annual survey of the business climate last month. In this survey, 78% of respondents indicated that they will not relocate their operations. This is a 5% increase over the same time period in 2019. And of those companies who indicated that they were moving production off-shore, 2.3% indicated that they were moving to the US. That number was 5.5% in 2019.
I recognize that our FDI and re-shoring activity comes from places all around the globe not just China. But, I still maintain that the deluge of FDI and re-shoring that has been predicted may be more like a trickle.
[Strategic Development Group, Inc. (SDG) is a professional site location firm that provides solutions to its corporate clients related to their site selection decisions. Leveraging a professional team with decades of experience across the US in locating domestic and foreign projects resulting in billions of dollars in capital investment, SDG is nationally recognized for innovation, competency, integrity and results.]