The Trump administration looks to boost domestic manufacturing through tax changes and public pressure.
The Risks of Reshoring
return will require
and will challenge
analyze new risks.
By Rodrigo Amaral
President Donald Trump pledged to create millions of jobs in the American economy. To achieve this goal he wants to convince companies to bring back the bulk of their supply chains to the United States. But promoting the reshoring of manufacturing will be a hard task
and, in order to accelerate this process, Trump looks set to experiment with policy
measures that should have significant effect on the operations of multinational
companies. The government can, for instance, implement tax reforms to reward
companies that invest in America, or impose punitive tariffs on goods imported
from suppliers located abroad.
Trump can also use his well-known persuasion skills to shame firms into
creating jobs at home, rather than elsewhere in the world. The latter strategy may
already have borne fruit earlier this year with the likes of Ford Motor Co. and
Carrier, which shelved plans to expand their production lines in Mexico, opting to
invest in Michigan and Indiana instead.
Either way, the government appears to mean business.
“It does the American economy no long-term good to only keep the big box
factories where we are now assembling ‘American’ products that are composed
primarily of foreign components,” Peter Navarro, the head of the White House
National Trade Council, told the “Financial Times” in January. “We need to
manufacture those components in a robust domestic supply chain that will spur
job and wage growth.”
If the administration manages to deliver on its promises, companies will have
to review the way they deal with supply chain risks. Experts have warned, for
example, that workers’ compensation issues could become a more important
factor across their supply chain, and insurance programs could become more
expensive as insurance coverages tend to be more comprehensive, and premiums
higher, in America than in developing nations. But opportunities could also arise,
for example in terms of lower transportation costs and proximity to the final
In fact, although the subject has gained plenty of attention due to the Trump
government’s protectionist views, the reversal of the globalization of supply chains
has been going on for some time already, said J. Paul Dittmann, the executive
director at the Global Supply Chain Institute at the University of Tennessee.
“It is a trend that is already very strong and seems to be growing,” he said.
The reasons for this movement are manifold. Higher geopolitical risks have
increased the threat of disruption of supply chains around the world in ways that
companies did not anticipate some years ago. Dealing with corrupt authorities in
the developing world involves plenty of risks of falling afoul with American courts,
and economies like China offer less of a cost advantage these days, as income and
wage expectations are beginning to catch up with developed economies.
“Costs have gone up significantly since the big outsourcing wave started some
15 years ago, and the economic advantages have narrowed,” Dittmann said. “Many
companies have been over-optimistic in their cost analysis, and they often do not
fully understand the inventory impact of long distance outsourcing.”
SCM, a think-tank that publishes an annual study on the subject, observed
that local-for-local supply chain
management strategies have gained
popularity among companies since
Furthermore, the argument that
focuses on jobs creation was also played
by the Barack Obama administration,
and the Economic Development
Agency has funded reshoring initiatives
for several years already.
That said, Dittmann warned that
the movement back to the United
“With a more regionalized
supply chain, where supplies
are much closer and there is
less need for transoceanic
cargo shipment, transportation
is one area where insurance
costs should be reduced.”
—Logan Payne, assistant vice president, Lockton
global client services
• Trump may persuade companies
to create jobs in the U.S.
• Authorities should address tax
and regulatory constraints.
• Concentration of the supply chain
may also concentrate business