Watch: How Practical Is Reshoring Production to the U.S.?

Bank of America Global Research's Antonio Gabriel indicates that U.S. manufacturing reshoring, a decade-long trend boosted by legislation and a significant shift in trade partners away from China towards nations like Mexico, peaked in 2022 and is now decelerating. Key obstacles to further large-scale reshoring include ongoing uncertainty from Trump-era tariffs, which are causing a pause in investment decisions and could hinder current GDP growth, alongside the potential for future policy reversals to undermine economic justifications for domestic production expansion.

Analysis

According to analysis from Bank of America Global Research, the multi-year trend of U.S. manufacturing reshoring has peaked and is now decelerating. While the trend has been evident for over a decade, its overall economic impact is limited, with manufacturing now accounting for only 8% of U.S. jobs compared to 30% in the 1980s. A significant reshuffling of trade partners has occurred since 2018, with China's share of U.S. imports contracting by approximately 8%, a volume largely absorbed by emerging economies like Vietnam and, notably, Mexico, which benefits from the USMCA framework. The primary headwind to further reshoring is policy uncertainty, specifically surrounding potential tariffs, which is causing corporations to pause investment decisions and creating a potential drag on current-year GDP. This is compounded by the long-term risk that a future administration could reverse such policies, undermining the economic rationale for major domestic capital expenditures.

Key Decisions for Investors

• Investors should moderate expectations for a broad-based boom in U.S. industrials, as the reshoring trend is slowing from its 2022 peak and faces significant headwinds from policy uncertainty.
• Consider strategic exposure to markets benefiting from the supply chain shift away from China, particularly Mexico, which is identified as a key beneficiary due to its favorable trade status under the USMCA.
• Closely monitor U.S. political developments regarding tariffs, as ongoing uncertainty is delaying corporate investment and poses a material risk to companies with capital allocation plans predicated on a stable reshoring thesis.