For nearly two decades, US manufacturers saw China as an optimum location for assembly operations – but reshoring from China is becoming a new trend. Due to a myriad of factors – from labor prices to fuel costs to infrastructure – US manufacturers are now bringing their operations back home. The trend is reversing. China is no longer considered the better option across the board. Reshoring to the US and especially nearshoring to Mexico are becoming more and more popular.
A Change in Trends
Over the past few years, US companies manufacturing in China have increasing begun reconsidering. Reshoring from China is has become a new trend, with more and more productions operations being relocated to North America. However, they seem to prefer Mexico over the US. While the US has been seen as too expensive for most low-medium-skill assembly operations, Mexico on the other hand is just right. As a result, according to one study, companies reshoring from China are choosing Mexico more than the US.
Until now, US manufacturers have viewed China quite positively. Due to their very low labor costs and large labor pool, China was the offshore champion. But the world economy is changing. Manufacturing is leaving China. The prices and labor scene is shifting. Transportation across the Pacific Ocean is becoming less cost effective – especially in world economy that places higher and higher premiums on speed.
Why Are Companies Reshoring From China?
Some of the factors driving companies back to North America are more obvious than others. While some changes might have been easily predicted, others are related to current events and unexpected developments on the world scene. Here are five primary reasons for the new trend of reshoring from China:
1. Trump Tariffs
The Trump tariffs are making it increasingly expensive to manufacture in China. After US President Donald Trump announced a 30% tariff hike on Chinese solar panels in early 2018, a round of tariff hikes ensued from both national governments. As a result, it is growing more expensive to import goods made in China. It seems more cost effective to produce these goods either in the US or in Mexico – a NAFTA/USMCA partner.
2. Currency Variations
Some have labeled the Chinese “currency manipulators.” And it’s clear their currency varies in value enough to make revenue and cost projections increasingly challenging. Conversely, Mexico’s peso seems to be a relatively stable alternative.
The American consumer is now accustomed to same-day shipping and constantly changing fashions and technology upgrades. The ability to manufacturer products requiring minimal transportation is key to remaining competitive. Add to this the higher costs of fuel, and Mexico or the US make even more sense for companies reshoring from China.
According to the Boston Consulting Group, the growing productivity of Mexico’s workforce is outpacing China’s. And China’s labor force is no longer the lowest bidder. Not only are Chinese workers becoming less productive than Mexico’s, they’re becoming more expensive. This removes the key differentiator in the outsourcing war.
5. China’s Economy
China’s economy is faltering. Some are convinced it is headed for a deep recession in the very near future. The economic instability is making it increasingly difficult to do business there. Yet the US economy is currently booming. And Mexico’s economy, intricately linked to that of the US, also remains promisingly stable.