Presidential candidate Donald Trump has been railing against the loss of America's manufacturing base to other countries, especially China, and has been declaring that he will bring offshored jobs back to America. The Donald may be surprised to find that the trend of returning jobs to America — aka "reshoring" — has been underway for some time now. However, the strength and the momentum of that movement are still in question.
U.S. manufacturing jobs were in significant decline through the early part of this century, sinking from almost 17.3 million jobs in January of 2000 to a low of 11.46 million ten years later. Outsourcing of jobs to countries with lower manufacturing costs ("offshoring") played a large role in that decline — in 2003 alone, 150,000 jobs were offshored. However, manufacturing jobs have been slowly climbing upward since then, reaching almost 12.3 million, and a partial reversal of the offshoring trend has contributed to that improvement.
2014 was a watershed year for the reshoring trend, as it marked the first time in over two decades that more jobs were created in the U.S. than were offshored. The combined jobs from reshoring and FDI (foreign direct investment, meaning foreign companies creating jobs within the U.S.) hit the 60,000 mark in 2014, outpacing the 50,000 jobs lost through offshoring that same year. Major companies such as Wal-Mart, General Motors, Ford, GE, and Caterpillar all brought thousands of jobs back into the U.S. workplace.
According to data from the Reshoring Initiative (RI), the U.S. still came out ahead in jobs in 2015, but by a lesser margin. Approximately 60,000 jobs were offshored, while 67,000 were created through reshoring or FDI. An RI report attributes this change in momentum to the unusual economic conditions of 2015: an unusually strong dollar, low oil prices, low shipping rates, and weaker economies in countries competing for manufacturing jobs.
All of those factors make outsourcing more attractive — and all of those factors are still present to some degree, as of July 2016. What does that mean for 2016? For the most part, economic factors may blunt the trend, but the effects may be worse on reshoring than with FDI. Foreign companies may prefer to increase their presence in the stronger U.S. economy. Meanwhile, the same relative strength in the U.S. economy makes the heavily cost-dependent activity of reshoring less desirable.
The A.T. Kearney U.S. Reshoring Index, a measure of the relative strength of net reshoring to net offshoring, dropped precipitously to -115 in 2015. That represents the biggest year-over-year drop in the index in the last decade. Fortunately, FDI is filling in the gap to result in a net increase in jobs.
With our move to more of a service economy, we may never see a return to the manufacturing levels of the 1970s, when 18 million to 19 million manufacturing jobs were common. Even so, reshoring efforts are more in the minds of corporate supply chains than they have been in years, and reshoring may overcome the challenging economic conditions that are threatening to reverse the trend. Until then, foreign direct investment seems to be filling in the gap nicely.
As for Donald Trump or Hillary Clinton, you will have to decide for yourself whether either presidential candidate really can add to jobs via reshoring, increasing foreign direct investment, or both. Listen for details of their plans, and make your choice. You may play a part in whether offshoring or reshoring/FDI gains the upper hand over the next four years.