Driven by tax incentives and tariffs, more US companies are committing to localization.

Because the US trade deficit in goods and services continues to surge, many people wonder if reshoring is really happening and whether its effects are beneficial.

According to data from the US Bureau of Economic Analysis, the US trade deficit surged to a new record in January. The goods and services deficit rose to $131.4 billion, ballooning 34% from December’s deficit of $98.1 billion. The report states, “This was the widest deficit for a month on record, dating back to 1992,” and added that the increase “was more than analysts anticipated.”

As usual, China ($29.7 billion) topped the list of countries with which the US has trade deficits. The rest of the top 10 included:

• European Union ($25.5 billion)
• Switzerland ($22.8 billion)
• Mexico ($15.5 billion)
• Ireland ($12.4 billion)
• Vietnam ($11.9 billion)
• Canada ($11.3 billion)
• Germany ($7.6 billion)
• Taiwan ($7.5 billion)
• Japan ($7.4 billion)

The good news is that reshoring is increasing and improving America’s self-sufficiency capacity for goods essential to the economy and national security, according to several recent surveys and reports.

For instance, an article titled “The Rise of Onshore Manufacturing” in the January-February 2025 issue of Design-2-Part magazine reports that “Research released in November by global management consultancy Bain & Company revealed an acceleration in strategic reshoring moves by businesses worldwide – to shift operations and supply chains closer to their home markets….”

The survey found that 81% of CEOs and chief operating officers reported their companies plan to bring supply chains closer to the end-market, up from 63% in 2022 – an 18% increase. The survey results show that 69% of companies plan to shift operations out of China, rising from 55% in 2022.

“Factors such as geopolitical turbulence, rising costs and pressures for reduced carbon footprints are fueling the trend toward onshoring,” the research states, adding that reshoring was further stimulated by the 2022 Inflation Reduction Act (IRA), which used corporate subsidies and tax credits to incentivize domestic manufacturing. It also credited the US CHIPS Act, which established tax incentives and other funding mechanisms to stimulate US semiconductor production.

The results of this research align with Kearney’s 2024 Annual Reshoring Index (KRI) report, which “concludes that as reshoring and nearshoring activity increase, ‘Made in America, for America’… describes the foreseeable future of industrial manufacturing in the Western hemisphere.”

Kearney launched the KRI in 2018 to track how manufacturers are reshoring manufacturing from Asia to the US. The index is calculated by dividing the import of manufactured goods from 14 low-cost Asian countries by the US domestic gross manufacturing output. The sum is the manufacturing import ratio, or MIR.

Based on data from 2023, the report showed US imports from 14 Asian LCCRs declined $143 billion, from $1.02 trillion in 2022 to $878 billion in 2023. Most of the drop, the report notes, came from a 20% ($105 billion) reduction in Chinese imports. Nevertheless, “Mexico surpassed mainland China as the largest exporter to the US. US imports of Mexican manufacturing goods grew from $320 billion to $422 billion (32%).”

The Kearny report also stated: “Thirty-eight percent of manufacturing executives responding are looking to continue to reshore or nearshore operations from mainland China, while another 25% are discussing moving operations away from India, and 14% are thinking about exiting Vietnam.”

Changing the mindset. The term “reshoring” was coined to describe efforts to return manufacturing to the US by changing the mindset from “offshored is cheaper” to “local reduces the Total Cost of Ownership.” It originated with the Reshoring Initiative founded by Harry Moser in 2010. A free total cost of ownership (TCO) worksheet calculator is available at reshorenow.org.

A recent newsletter from the Reshoring Initiative links to its annual industry-wide Reshoring Survey that examines manufacturers’ decisions on whether to reshore factories and supply chains. The results of the survey are released each April.

Last year’s report featuring 2023 data showed reshoring continuing to climb, adding 263,583 jobs, the second highest year on record, compared to 349,408 jobs in 2022. Preliminary data for 2024 show 244,940 jobs added. The website reports “As of March 2023, we have recorded over 6,400 cases of manufacturing companies that have brought work back to the US.” The total number of jobs created by reshoring and FDI came to 1,214,3343 at the end of 2024. This is reprinted with permission of the Reshoring Initiative.

We lost 5.8 million jobs between 2000 to 2020, and it’s taken 11 years to add the first million jobs, but only three years to add the second million. Even at the current faster rate, it would take at least another 12 to 15 years to recover the 3.8 million jobs lost.

The key findings of the 2024 report were:

• Geopolitical risk is the top driving force in reshoring and FDI trends.
• The skilled workforce is another top factor.
• The Southern US remains the most competitive manufacturing region.
• Nearshoring and trade with allies are becoming more prevalent in the shifting global dynamics.
• Wall Street is embracing reshoring, with mentions in earnings calls up sharply and a 300% increase in spending on reshoring and Foreign Direct Investment. FDI refers to foreign companies investing in the US by expanding existing plants or building new ones.

The report noted:

• Israel – “The October 7 Hamas attack was too late in 2023 to impact 2023 data, but we anticipate it will have a ripple effect across various industries with broad economic and supply chain disruptions that will influence costs, availability of materials and production schedules.”
• Taiwan – “US Chinese tension has been mounting for several years. Geopoliticians and corporate strategists are anticipating reshoring as insurance.”
• China – China has the highest combination of huge trade dependency, single sourcing and geopolitical risk. Reshoring and FDI from China are near historical highs, with reshoring alone at an all-time high of 87%.”

Since these geopolitical threats have increased in the past year, the incentive is greater to consider reshoring. According to this report, the number of CEOs actively reshoring grew from below 10% in 2012 to nearly 90% in 2023.

The latest e-news from the Reshoring Initiative states: “The mere threat of tariffs seems to be doing a sufficient job of defining the objective: the US must boost domestic manufacturing to strengthen national security, reduce the trade deficit and support economic stability. And the Trump administration appears serious about making that happen. Regardless of how tariffs are implemented, the pressure is driving companies to rethink their supply chains and commit to localization.”

The e-news cautions, however, that “While the mere threat of tariffs could be enough to firm up some of the plans, many projects will only move forward when the tariffs are in place, and likely to remain in place, for at least the next four years.”

As Michael Todd Speetzen of Polaris said, “We have a presence that we would be able to leverage if we viewed this as a more permanent situation.”

The Reshoring Initiative’s industrial policy says that if tariffs are used, they should be “forever,” or at least until trade in the product or with the other country balances. Companies will not make large investments if the rules are likely to change.

While tariffs are criticized by economists and those who would be subject to the tariffs, it appears that tariffs could become the major driver of reshoring by American manufacturers. It could also accelerate Foreign Direct Investment as more foreign companies expand existing plants in the US or build new manufacturing plants in the US to avoid tariffs.

Some economists say that tariffs protect and prop up inefficient American manufacturers that should be allowed to fail if they can’t compete against foreign competitors.

I agree with the Victor Davis Hanson’s opinion about President Trump’s tariffs in his article, “Are Trump’s Tariffs Really Tariffs?” Hanson writes, “Consider the various Trump ‘tariffs’ leveled by an exasperated, and now $36 trillion-indebted, America. Almost none of them meets the traditional definitions of an industry-protecting tariff. Instead, they are the last-gasp tools of American leverage used only when decades of bipartisan diplomacy, summits, entreaties and empty threats have all failed … The Trump tariffs are the last, desperate effort to reestablish global reciprocity and keep America safe.”

American manufacturers have had to compete on an unlevel playing field in international trade for decades. We need to do whatever it takes to rebuild our manufacturing industry to ensure that we have the commercial and military/defense products needed to keep Americans healthy and safe. If tariffs would level the playing field for American manufacturers and accelerate reshoring significantly, then I’m all in favor of implementing tariffs until our trade is balanced.

Michele Nash-Hoff is president at ElectroFab Sales (electrofab.com); mnashhoff@electrofab.com.

• Next