After five straight years of losing manufacturing to imports, the United States finally regained some of its manufacturing base last year. That’s according to a new reshoring index developed by the Coalition for a Prosperous America (CPA).
The CPA Reshoring Index (CRI) reports some good news—that the share of American-made manufacturing goods consumed in the U.S. market jumped significantly in 2019. But can the nation sustain that growth, particularly in the wake of the coronavirus epidemic?
The CRI hit 59 last year, its first positive jump since 2009. This reflects a growth in U.S. manufacturing output of 0.8% in 2019, with manufacturing imports falling at the same time by 1.0%. Since America’s gross manufacturing output is worth $6.3 trillion, even small percentage changes like these translate into significant overall effects for individual industries, employment, and the U.S. economy as a whole.
While there are other ways to measure the health of the U.S. manufacturing sector and trade flows, the CRI focuses on the success of manufacturing in winning or losing share in the U.S. market. That’s an important indicator because history demonstrates that every successful manufacturing nation grew prosperous by first capturing and dominating its home market. In the U.S., the loss of a huge portion of our home market to imports in the last two decades directly contributed to the loss of 5 million manufacturing jobs. It was also a key driver of regional decline, reduced real income for many, shorter life expectancy for certain sectors of the U.S. population, greater income inequality, and greater political polarization.
Between 2002 and 2018, the U.S. manufacturing sector lost 8 points of market share to imports, as import penetration in manufactured goods rose from 23% to 31% of consumption in the U.S. This performance was even worse in certain sub-sectors: in apparel, for example, the U.S. lost 26 points of market share—and ended up with 93% of apparel demand in imports last year. In Computers and Electronics, the U.S. lost 22 points of market share, to end up last year with 68% import penetration. Between 2002 and 2019, U.S. manufacturing lost share to imports in 17 out of 19 sub-sectors.
CPA’s data shows that 2019 marked a substantial reversal of this trend. Overall, the U.S. gained 59 basis points (0.59 percent) of share in total manufacturing. In Computers and Electronics, the U.S. gained 402 basis points. Furniture saw a gain of 291 basis points. Wood Products gained 201 basis points. But it wasn’t all good news; Food Manufacturing lost 19 points of market share to imports last year.
This year’s economic performance will be heavily impacted by the coronavirus crisis. Looking towards 2021 and beyond, it’s unclear whether recent growth in reshoring will continue. There are positive signs, such as the multibillion-dollar investments by the steel industry in the latest production technology. However, other industries, such as Computers and Electronics, have shown little interest so far in investments to bring production back to the U.S.
The Trump administration’s tariffs were instrumental in delivering a positive Reshoring Index for 2019. However, it’s likely that more policy measures will be needed for that trend to continue. That could include a realigned dollar to make U.S. industry more competitive, Buy American policies to ensure the federal government and its agencies support domestic American manufacturing, and tax incentives to help targeted industries like pharmaceuticals begin rebuilding domestic capacity in the United States.
Jeff Ferry is chief economist at the Coalition for a Prosperous America (CPA).
