US manufacturing: a long road to reshoring

US trade and industrial policy remains in focus as the countdown to the presidential election gathers pace. Former President Trump has long advocated for repatriating American manufacturing; Vice-President Harris, while not as strident in her rhetoric, has vowed to continue the Biden administration's efforts to bolster supply chains with more "onshoring."

However, there are few signs so far that US corporations have moved production home from cheaper labor markets abroad. The closest the US has come to "reshoring" was in fact "nearshoring" -- and Mexico was the key beneficiary.

Our first chart examines US balance of payments figures for insight. "Net acquisition of financial assets" is an important metric. It is assumed that this figure would fall if significant reshoring was taking place: companies would sell operations abroad and repatriate capital to the US for industrial expansion.

However, as of Q1 of this year -- the most recent available data -- this indicator had been increasing for five consecutive quarters. As our chart shows, declines have been very rare. This is a "net" metric, so reshoring could have been taking place -- but if it did, it was likely outpaced by continued direct investment abroad.

Our second chart breaks down these net figures by region. The preponderance of dark pink in many of the bars indicates the importance of Latin America (including Mexican "friendshoring") as an investment destination. Europe remains prominent for investment; since 2019, Asia-Pacific has been significant, but stands out less as as an investment destination than other geographies.

As our third chart shows, US direct investment in manufacturing accounts for 22% of the total stock of US investment abroad; this share in fact picked up during Trump's term, and has held stable since late 2019. During the second Obama term, that share hovered at about 18%.

Over the long haul, manufacturing has steadily declined as a share of the employment market. World War II saw US manufacturing jobs peak at almost 40% of the non-farm total; since 2010, that figure has held between 8% and 9%. Unemployment in the sector is significantly lower than the average, however -- standing at 3.5% vs 4.2% overall.

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