- Reshoring supply chains to North America could be limited by the region's reputation for protectionism, the resilience of Asian supply chains during the coronavirus pandemic and the growing consumer market in Asia, according to a new report from The Economist Intelligence Unit.
- North America's share of global exports is expected to remain unchanged, remaining at 14% by 2025, according to a forecast in the report. Asia's share is expected to grow two percentage points to reach 38%.
- The report does expect foreign direct investment to increase in the U.S. and Canada between now and 2025, but expects it to fall in Mexico over the same period.
There has been political and business interest in reshoring manufacturing to North America in recent years. A series of tariffs during the Trump administration made it more expensive to import goods from China, and China's labor wages have been on the rise for more than a decade.
Interest heightened during the pandemic as some industry stakeholders and politicians suggested that relying on other countries for vital goods like personal protective equipment could be a vulnerability in the future.
Earlier this month, the Biden administration released a report following a 100-day review of four critical supply chains. The document outlines steps to increase the manufacturing of these goods in the U.S. or ally nations.
The White House report and its suggestions are not exactly surprising, but making it happen could be difficult, according to Andrew Viteritti, the Economist Intelligence Unit's commerce and regulations lead.
"The big question then is whether we expect this to change anything," Viteritti said. "It's going to be very difficult as things stand now to convince companies that that's going to be a viable option," in reference to reshoring and domestic manufacturing.
Asia is still a viable option for many supply chains. Asia proved its resilience during the pandemic with its exports recovering more quickly than other regions. And its consumer market is growing.
"So businesses are not going to want to move too far from Asia, because doing so would essentially make it more difficult for them to sell the goods in that market," Viteritti said.
Canada and Mexico forecast to lose export share
The cost of working in Asia is still lower than the U.S. or Canada. This includes the labor cost, but also the opportunity cost of being close to its consumers, he said.
So while large-scale shifts from Asia to North America aren't expected under this forecast, it does see FDI growing in Canada and U.S. The nations remain strong business environments due to their political climates, labor, infrastructure, technological readiness and other variables.
"Mexico is going to be the odd man out, though," Viteritti said.
Labor wages are competitive in Mexico, but the country has issues of its own that could turn businesses away, he said.
"One of the biggest reasons is just because there's been a huge movement towards protectionist policy in Mexico under the current administration," Viteritti said. He pointed to the rollback of the country's energy reforms and the cancelation of high-profile foreign investment projects under the administration of Andrés Manuel López Obrador.
López Obrador's term goes through 2024 and the forecast goes through 2025. This helps explain why Mexico's business forecast "looks quite bleak," Viteritti said.