US Factory Construction Soars as ‘Reshoring’ Trend Builds Steam

US Factory Construction Soars as ‘Reshoring’ Trend Builds Steam
The body of a Tesla Model S is transported by an automated crane at the Tesla factory in Fremont, Calif., on Oct. 1, 2011. (Stephen Lam/Reuters)
Naveen Athrappully

Factory construction in the United States is surging as more American companies consider reshoring their production. Reshoring is the process of bringing back production and manufacturing of goods to a firm’s original country.

An analysis of earnings calls and conference presentations by Bloomberg revealed CEOs indicating plans to relocate production at a greater rate in 2022 than during the first six months of the pandemic. The analysis is based on the usage of buzzwords like reshoring, onshoring, or nearshoring.

Such references are up by more than 1,000 percent compared to the pre-pandemic level. Companies have been rattled by China’s wave of extreme COVID-19 lockdowns. Construction data further strengthens the view that companies are building more manufacturing facilities in the United States.

“For the 12 months ending May 2022, nonresidential building starts were 20 percent higher than in the 12 months ending May 2021. Commercial starts grew 18 percent, institutional starts rose 9 percent, and manufacturing starts swelled 116 percent on a 12-month rolling sum basis,” according to a June 17 news release by Dodge Data and Analytics.

In the first five months of 2022, commercial starts were up by 17 percent, institutional starts by 2 percent, and manufacturing starts by 97 percent on a year-to-date basis.

In a UBS survey of C-executives in January 2022, over 90 percent stated that they were either moving manufacturing out of China or were in the process of doing so. About 80 percent were looking at bringing some of that production to the United States.

The latest data from the U.S. Census Bureau shows that new orders for manufactured goods rose by 1.6 percent in May. This is the 12th monthly increase in the past 13 months.

Reshoring to the United States

According to a 2021 report from the Reshoring Initiative, reshoring and foreign direct investment (FDI) job announcements in 2021 hit a record 261,000, bringing the total jobs announced since 2010 to more than 1.3 million.

For the second year in a row, reshoring exceeded FDI by 100 percent. This is in stark contrast to the period between 2014 and 2019 when FDI exceeded reshoring. In addition, the number of companies reporting new reshoring and FDI hit a record at 1,800.

Import shortages during the pandemic triggered government support for domestic production of essential products, Reshoring Initiative’s report revealed.

The dramatic increases in freight cost and delivery time, the 2017 corporate tax and regulatory cuts, and rising concerns about America’s dependence on China contributed to the reshoring trend, it added.

“The high rate of 2020 and 2021 reshoring vs. foreign direct investment also indicates that U.S. headquartered companies are starting to understand the same benefit to localized production that many foreign companies have understood over the last decade,” the report said.

There have been significant investment announcements from chipmaking plants in the United States by tech giants Intel Corp. and Taiwan Semiconductor Manufacturing Company. Aluminum and steel plants are coming up in Arkansas, Kentucky, and Alabama. Several smaller companies are also reportedly making similar moves.