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Reshoring Index Declines Again Despite America's New Trade Policies

A.T. Kearney's latest Reshoring Index shows that, despite recent changes in trade and tax policy, growth in imports from low cost countries continues to outpace US Manufacturing Output; the report also describes how trade tensions with China have resulted in significant shifts in the landscape of US imports from low-cost countries

CHICAGO, July 10, 2019 /PRNewswire/ -- A.T. Kearney's sixth annual Reshoring Index reveals that reshoring is yet to materialize on an aggregated level. U.S. gross manufacturing output grew 6% year-over-year (YOY) in 2018, but by comparison, growth in manufactured goods imports into the United States from the 14 largest LCC trading partners in Asia rose by $66 billion or 9% in 2018, the largest one-year increase since the beginning of the economic recovery. In fact, the ratio of goods imports from Asian LCCs to domestic manufacturing is the highest since the inception of the Reshoring Index.

A.T. Kearney Logo. (PRNewsFoto/A.T. Kearney)

Dramatic changes to U.S. trade policy intended to 'reshore,' or bring manufacturing home, rose to the forefront in 2018. Chief among these changes were the three rounds of like-for-like tariffs exchanged between the U.S. and China. The A.T. Kearney Reshoring Index indicates that despite these new trade and tax policies, reshoring has not seen an uptick; this is largely due to the fact that the fundamental economic advantage of manufacturing in low-cost countries remains unchanged. What has changed, however, is where imports are coming from within the group of traditional low-cost trading partners.

"Rather than incentivizing companies to reshore, the trade war with China has simply accelerated an already ongoing shift toward manufacturing in lower-cost countries such as Vietnam," said Patrick Van den Bossche, A.T. Kearney partner and co-author of the study. The A.T. Kearney China Diversification Index (CDI) was introduced to this year's study to quantify this shift. "The CDI indicates that China's role as "the factory of the world" is changing faster than anticipated," stated Brooks Levering, A.T. Kearney partner and co-author of the study.

A.T. Kearney concludes this year's study with a forecast of potential scenarios regarding global trade policy, as well as domestic investments into U.S. manufacturing competitiveness, and how these various scenarios will impact American manufacturing. "We have seen how trade wars act as a double-edged sword hurting both the domestic economy as well as the economy of trading partners. On the other hand, efforts made to expand U.S. competitiveness, such as investments in workforce development, infrastructure, and research, drive pure benefit to American manufacturing," said Johan Gott, A.T. Kearney principal and co-author of the study.

Study Findings
The A.T. Kearney U.S. Reshoring Index provides insight into how U.S. manufacturing is growing with respect to offshore manufacturing; the index compares government data on U.S. manufacturing gross output to import data from 14 low cost countries. In 2018, imports of manufactured goods from offshore trading partners reached $816 billion, while U.S. domestic gross output of manufactured goods reached $6,249 billion. As a result, the Manufacturing Import Ration (MIR) for 2018 is 13.1 percent, meaning there was 13.1 cents worth of offshore production bound for the U.S. market for every $1 of domestic manufacturing gross output. This represents the highest U.S. Manufacturing Import Ratio the Reshoring Index has seen since its inception.

The Reshoring Index, calculated as the year-over-year change in the MIR, expressed in basis points, was minus 32 bps for 2018, highlighting the fact that imports from low-cost countries grew at a faster pace than U.S. manufacturing gross output.

The A.T. Kearney China Diversification Index (CDI), released in this year's study, indicated that while China continues to hold close to two-thirds of  the total $816B of U.S. imports from the 14 LCCs we track, the past five quarters demonstrated a dramatic decrease in China's share. China's share of total imports to the U.S. from the 14 largest LCC trading partners decreased from 69% in Q4 2013 to 60% in Q1 2019. China's lost share is equivalent to a loss of $72B in import value, more than the total 2018 value of imports from India ($51B), which holds the second largest share of imports to the U.S.

The A.T. Kearney US Reshoring Index reveals that Vietnam, and Mexico, among others, are benefiting from China's losses. Vietnam captured approximately half of the $72B in import value, or $36B, lost by China. Imports from Mexico to the U.S. grew by $28B in 2018, a growth rate of 10% over 2017, the fastest growth that Mexico has seen in the past seven years.

This year's report also comments on other factors constraining investments to expand U.S. production. Chief among these constraints is the lack of skilled manufacturing workers, especially those with the capabilities required to work in increasingly automated and technology enabled factory environments. In 2018, the vacancy rate in manufacturing jobs grew for a fifth consecutive year, with an average of nearly half a million vacant positions throughout the year.

To read the full report, click here: 
US Trade Policy and Reshoring: The Real Impact of America's New Trade Policies

About the A.T. Kearney US Reshoring Index
When A.T. Kearney launched the Reshoring Index in 2014, much of the evidence for reshoring was anecdotal, often highlighting no more than a handful of high-profile cases, and the conclusions seemed to reflect wishful thinking or political agendas more than hard facts. Even the best research focused more on promulgating models of future reshoring than on accurately assessing reality. So, our objectives were simple: find out what US manufacturers are doing, and separate hype from reality. The Index addresses these objectives by aggregating actual US manufacturing and import data to track what is really happening while providing a simple but powerful indicator of where manufacturing for the US market is going.

About A.T. Kearney
A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues. For more information, please visit www.atkearney.com.

Contact: Bill Smith


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