North America will not see significant supply chain reshoring in 2021–25
EIU — Economist Intelligence Unit
Wed, 16th Jun 2021
- Despite growing optimism among US policymakers that American companies could reshore production to North America, such moves will remain exceptional in the coming years.
- Companies and investors will remain deterred by North America’s lack of competitiveness compared to Asian economies.
- Lingering protectionism and cross-border tensions within North America will present another obstacle, complicating options for arbitraging production costs throughout the region.
- These factors will discourage the types of investment required to transform North America into a viable, self-sustaining supply-chain ecosystem.
There is growing optimism among policymakers in the US around developing a North American alternative to Asia-based supply chains. The EIU believes these expectations are overblown, with businesses favouring the convenience, reliability and cost-effectiveness of Asia.
Competitiveness will remain a broad concern
North America boasts several advantages-including years of economic integration, a large free-trade area, short travel times and new opportunities for policy coordination under USMCA. However, a number of obstacles will prevent businesses and investors from viewing North America as a realistic production substitute for Asia, at least through the medium term.
Andrew Viteritti, The EIU’s commerce and regulations lead
Of particular relevance will be Asia’s more successful mitigation of coronavirus disruptions to production and trade, as well as Asia’s established, reliable and low-cost manufacturing capabilities.
Protectionism and cross-border tensions will persist post-Trump
Protectionism and cross-border tensions within North America will present another impediment, notably complicating options for arbitraging production costs throughout the region.
Mr Viteritti says, “Mr Biden has gone to great lengths to signal that the US ‘is back’ as an international partner, eschewing the ‘America First’ strategy of his predecessor, Donald Trump. However, it is still not clear how Mr Biden will reconcile this approach with his goal of revitalising US manufacturing and jobs.”
Rifts remain in the US-Canada relationship, including over lingering US tariffs and potential exemptions to Mr Biden’s new “Buy American” rules. There also are concerns over the rise of nationalist and statist policies in Mexico, which are compromising that country’s potential to serve as a cost-effective production hub for North America.
Managing expectations
These factors will discourage the types of investment required to transform North America into a viable, self-sustaining supply-chain ecosystem. This will be particularly true of foreign investment, which will continue to favour Asia’s low-cost production hubs. We forecast that Asia’s share of global exports will continue to rise in 2021–25, reflecting the region’s sustained importance in global supply-chain networks, while North America’s share will remain unchanged.
Download the full report “North American supply chains: will reshoring actually happen? “
Originally published at https://www.eiu.com on June 16, 2021.
