Made in America has not resonated more powerfully at any point in recent memory than it does now. With increasing concerns regarding goods manufactured in China and the 14 Asian Low-Cost Countries (LCCs) as defined and tracked by Kearney, governmental restrictions, and the recently enacted tariffs, consumers and manufacturers alike are showing preference for goods manufactured in North America.
The Kearney U.S. Reshoring index is an annual report tracking domestic and international imports and exports. The Index analyzes trends in manufactured goods. The recently published 2019 Index shows a significant decline in the ratio of manufactured goods imported from Asian LCCs when compared to U.S. gross manufacturing output. The decrease is the first since 2011, and the most significant decrease since the index began tracking data in 2008.
The ratio change was driven by a sharp decline in manufactured goods imported from Asian LCCs, which contracted from $816 billion in 2018 to $757 billion in 2019, a decrease of 7%. This was specifically driven by imports from China which saw a 17% decrease year-over-year, roughly a $90 billion reduction. Meanwhile, U.S. gross manufacturing output held steady, increasing from $6,217 billion in 2018 to $6,266 billion in 2019.
Though the drop in the ratio indicates a preference for U.S. companies to source materials domestically, the modest increase in U.S. manufacturing gross output of 0.8% is the lowest increase since 2016 in both percentage and dollar amount. The slowed rate of increase is undoubtedly indicative of retaliatory trade tariffs placed on the U.S. Additionally, as Chinese manufacturing imports have declined, manufactured imports from Mexico and Vietnam have risen $13 billion and $14 billion, respectively, from 2018 to 2019. This indicates that U.S. companies have diversified supply chains from China to other low-cost countries.
Just as the 2019 trade tariffs created a major disruption in Chinese and U.S. manufacturing trends, the global COVID-19 pandemic of 2020 will create interference in a new order of magnitude. At the time of this writing, the full context of the trauma is unknown. However, as 2019 events caused adjustment in trade balance, COVID-19 will require companies to profoundly reimagine their sourcing strategies. In the least, companies will be inclined to spread their risks through further diversification strategies rather than tempting fate by placing all of their sourcing in the lowest-cost bucket.
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