The ongoing trade war with China, an increase in import tariffs, and uncertainty about U.S. trade policy may be slowing U.S. manufacturing growth. These policies are also not bringing manufacturing jobs back from overseas, according to data from A.T. Kearney.
While the wide range of tariffs that have been put in place since the start of the Trump administration are targeted at a wide range of issues, the promise of reshoring manufacturing jobs has been one of the proposed aims from the beginning. However, there is evidence that the ongoing trade war with China has largely benefitted other low-cost manufacturing regions.
A.T. Kearney’s Reshoring Index has found that a year after the first round of tariffs on Chinese imports, the growth of imports from Asia to the U.S. actually increased by 9 percent in 2018, the largest such annual increase in more than ten years. Production is shifting to India, Vietnam and Mexico in order to avoid tariffs while still taking advantage of lower production costs in those countries.
According to the report: “While it may be too early to judge whether large-scale reshoring will ever result from recent policy changes, U.S. manufacturing has already started feeling negative effects. Steel and aluminum tariffs, for example, have increased input costs and decreased profits. Retaliatory tariffs imposed by China and other leading trade partners have many CEOs evaluating opportunities to shift production out of the US to avoid the impact of tariffs.”
Both Ford and GM cited the tariffs as a cause of the earnings declines in 2018, leading to large-scale layoffs.
A.T. Kearney found that while U.S. gross manufacturing output grew 6 percent in 2018, the growth in manufactured goods imports from the 14 largest low-cost trading partners in Asia rose 9 percent in the same period, the largest one-year increase since the start of the economic recovery.
Vietnam’s exports to the U.S. have doubled since 2013, with that growth rate accelerating in 2019. The A.T. Kearney report found that Vietnam captured approximately half of the $72 billion in import value lost by China. Imports from Mexico to the U.S. grew by $28 billion in 2018, a growth rate of 10 percent over 2017, and the fastest such growth that Mexico has experienced in nearly a decade.
"Rather than incentivizing companies to reshore, the trade war with China has simply accelerated an already ongoing shift toward manufacturing in lower-cost countries such as Vietnam," said Patrick Van den Bossche, A.T. Kearney partner and co-author of the study.
The A.T. Kearney report also noted that reshoring efforts have also been stymied by the high cost of building new factories, and an ongoing shortage of skilled labor that has left many existing U.S. manufacturing facilities scrambling to fill positions.
There has been some positive progress on international trade. Mexico recently passed the updated North American free trade agreement (USMCA), which was received positively by the auto industry.