Why Are U.S. Companies Leaving China and Reshoring?

In response to pandemic-induced supply chain issues and slowed economic growth, American companies have been leaving China and reshoring their production to the United States. Reshoring—or onshoring—presents a solution to high transportation costs, long lead times, and geopolitical instability.

By reshoring their manufacturing processes, companies can reduce costs and respond more readily to customer demand. They also lower the risk of supply disruptions, increase control over the manufacturing process, and improve proximity to the end market.

According to Bloomberg estimates, economic growth is expected to slow as inflation continues to rise into 2022. Amid this economic landscape, reshoring is becoming an increasingly attractive option for many manufacturers.

What’s Happening With the Supply Crunch?

The reshoring trend has accelerated in the wake of the COVID-19 pandemic, as U.S. companies seek to avoid the disruption of international supply chains. While the pandemic exposed many of the shortcomings of the global supply chain, globalization has long been a political and social issue.

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Coming out of the pandemic, demand has skyrocketed, but America’s industrial sectors have struggled against rising inflation and raw material shortages. These factors have contributed to record-long lead times, which is one of the key indicators of current supply chain issues. Recent data from the Institute for Supply Management shows that companies waited for raw materials for up to 79 days in April 2021, the longest wait time since 1987.

These issues have caused many companies to hold back on investing in their own business. The rising costs of raw materials translate to lower profit margins.

Why Are U.S. Companies Considering Reshoring?

Successfully reshoring requires a strategic approach. While it’s easy to decide to reshore due to the state of current events, companies should also consider the long-term implications of reshoring. For many companies, the long-term benefits outweigh the initial costs. U.S. companies have increasingly been reshoring in recent years due to several key reasons.

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Reduced Lead Time

Lead time is the time from when an order is placed to when it is received. Long lead times can be a major problem for businesses, as they can miss out on opportunities and incur extra costs. By reshoring production, companies can reduce lead times significantly. There is no need to ship goods from overseas, and production can be closer to the end consumer. Reshoring allows companies to bypass:

  • Border inspections
  • Shipping transfers
  • Shipping delays
  • Delays due to miscommunication/language barriers and time zone differences

In addition, reshoring can help companies make changes more quickly in response to consumer demand and other market conditions.

Fewer Import Tariffs

Another reason U.S. companies are reshoring is the increasing cost of imports. The initial reasons why companies moved overseas—low labor costs, low tariffs—no longer apply. Due to higher tariffs, rising transportation costs, and currency fluctuations, imported goods have become more expensive, making reshoring an attractive alternative.

It’s also becoming increasingly hard to do business in China due to things like increased regulation and rising labor costs. The ongoing trade war between the U.S. and China and the U.K. leaving the European Union are several factors that have led to higher tariffs on imported goods.

Political Climate

The political climate between the U.S. and China has also contributed to the trend of reshoring manufacturing operations. The two governments’ opposing viewpoints on how economies and people are governed, as well as U.S.-imposed tariffs on Chinese imports during the Trump administration, have made it increasingly difficult for American manufacturers to continue operations in China. The Biden administration continues to criticize Chinese economic policies, adding to tensions between the two countries competing to be the number one economy in the world.

Higher Quality Products Made in the U.S.A.

In many cases, companies that outsource their manufacturing to other countries have found that the quality of their products suffers as a result. This is often due to lower standards of quality control in foreign factories. By reshoring their operations to the United States, companies can regain control over the quality of their products and ensure that they meet the high standards of their customers.

Another reason for the trend of reshoring is the perception that products made in the U.S. are superior to those made overseas, whether it’s in terms of safety or durability. Reshoring could add up to $443 billion to the domestic economy over the next few years.

Sustainability

Sustainability is the ability to meet the needs of the present generation without compromising the ability of future generations to meet their own needs. When it comes to business, this means operating in an environmentally friendly and socially responsible way. Reshoring helps companies reduce their environmental impact by reducing transportation emissions and waste and supporting local communities. An analysis by Cadmatic revealed that one large container vessel emits about as much sulfur as 19 million cars in city traffic.

In addition, reshoring can improve customer satisfaction and brand loyalty, as customers increasingly prefer to buy from companies that share their values. As more and more businesses strive to operate sustainably, reshoring will become even more common.

Freight Costs

The cost of shipping a single standard container from Asia to the west coast of the U.S. went up to $20,000 in September 2021. By producing goods closer to the point of consumption, companies can avoid the high cost of shipping goods long distances.

Why Should You Reshore With Madsen Steel?

With more than 80 years of experience, Madsen Steel Wire Products has become one of the most trusted names in North American manufacturing. We’re proud to be a made-in-the-U.S.A. company dedicated to the highest quality custom wire products and services.

Our full-service capabilities and cutting-edge machinery allow us to handle your project from start to finish. Unlike other manufacturers who only do wire fabrication, we can provide solutions in wire manufacturing, welding, powder coating, tube fabrication, sheet metal assembly, packing, and distribution.

We serve markets in the U.S., Mexico, and Canada and have streamlined our product design and manufacturing operations to fulfill orders from 500 to more than 200,000 wire components. contact us today to learn how we can serve you.

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