Reshoring is a trend (and topic du jour) that has been underway for a couple of years, particularly between China and the US. It is a term that has been coined to describe the trend for a country’s manufacturing operations that have previously been moved offshore, to be returned home, or reshored.

The trend of offshoring had been primarily driven by the chase for low cost labour, this trend now seems to be over. It has become clear that the total cost of ownership/manufacturing includes much more than just labour. Consider this: in 2010 China and the US each accounted for about 20% of the world’s manufacturing, but the US did this with only a tenth the work force of China.

The Boston Consulting Group, in an April 20, 2012 survey, estimated that by the end of this decade 70% of the goods the US now imports from China will be made in the USA.Read more here. In an August 2011 survey by the Economist Intelligence Unit (sponsored by GE), survey respondents considered that the three greatest assets the US manufacturing industry has over emerging markets are the high quality of products (61%), innovative processes (39%) and the protection of intellectual property (37%). Read more here.

Numerous companies of all sizes have already reshored from China, or are considering so doing. They include: GE (which manufactures just about everything), Caterpillar (earthmoving), Toto USA (toilets), NCR (ATMs and the like), Pickpoint (medical), S & S Technology (medical), Presair (electronic), Google (you know it), Infinity Plastics Group (medical plastics), Sleek Audio (headphones), Otis elevator (elevators, escalators), Ford Motor (cars, trucks, motors), Masterlock (security), and many more.

This trend does not necessarily mean that these companies will be closing factories in China. Many plan to use existing plants to manufacture products for the Asian region. Further, offshore manufacturing investment continues to grow. However, there are some important factors that are driving the reshoring trend. The main ones are briefly described below:

  • Low US energy costs. The development of shale oil and gas and discoveries of conventional oil have dramatically reduced US energy imports and costs.
  • Increasing Chinese wages. Chinese industrial wage rates continue to rise, even taking into account the decline in the Chinese Yuan against the US dollar.
  • Closer to customer. This allows rapid response to customer issues and also readily allows customers to provide manufacturing input.
  • Integrated research, engineering and manufacturing. This allows rapid implementation of new developments that may, for example, improve product quality or lower production cost.
  • Intellectual property. This is a somewhat delicate issue but there is little doubt IP is better protected in the US than in China.
  • Communication. It is much easier and less costly to do business where suppliers, manufacturers and customers speak the same language and have a similar approach to business.
  • Quality control. As mentioned above, this is the greatest concern of companies manufacturing in China. Stories are legion regarding contaminated food and drugs, out of specification castings, substitution with cheaper components and so on.
  • Automation and productivity. The US continues to lead the world in patents, automation and new techniques such as additive (think 3D printing) manufacturing.
  • Transport and travel. Shipping products half way around the world is expensive and time consuming. For smaller companies, continuous staff travel is an added burden.
  • Working capital. Smaller companies are often required to put up around 25% of the total cost before a Chinese factory will begin manufacture. This can be a significant drain on cash flow when allied with long shipping times and other issues.


The reshoring trend is by no means limited to China and the US, and the above factors are not the only ones considered by manufacturers in making investment decisions. For example, while most parts for Toyotas sold in the US are manufactured in the US, some key parts are only manufactured in Japan. Last year’s tsunami in Japan resulted in supply delays, leading to a reduction in cars sold and considerable lost revenue to Toyota.

Finally, what are the likely outcomes for energy and metal commodities, should the reshoring trend continue? In the short term very little, particularly with modest worldwide economic growth. However, with improved economic growth, change can be expected.

However, research is required before the effect of reshoring upon commodity supply and demand can be separated from the effect of other economic changes. So what follows is some initial speculation that will be followed up over time.

We could expect to see reshoring contribute to a decline in the price of exported energy, particularly natural gas and coal. Reshoring is unlikely to impact upon the main metals such as iron ore and copper. However, it could have a significant impact upon some specialty metals and those where production is dominated by China.