By Steven L. Byers, PhD, and Jeff Ferry
Key Points
- The CPA Reshoring Index (CRI) came in at 69.0 in Q3 2020, a decline of 165 basis points (1.6 percentage points) as compared to the Q2 level of 70.6, indicating that US manufacturers lost share to imports in Q3.
- US manufacturing production rose sharply in Q3, rebounding by 12.7% as compared to Q2, as many manufacturers ended Covid-related shutdowns. However, consumption of manufactured goods rose faster, by 13.7%, leading to a decline in the CRI Index.
- The CRI fell sharply in the computers sector, where US producers lost 4.3 points of market share in Q3, falling to a 33.8% share.
- On a national source of imports basis, China’s share rose sharply to 6.81% of total US manufactured demand, equivalent to $476 billion of manufactured imports on an annual basis. However, Chinese manufactured imports are still well below the 7% levels seen in 2017 and 2018.
- Mexico ranked second in manufactured imports with a 4.62% share of all US manufactured goods demand in Q3, a sharp increase from the 3.15% level of Q2.
This quarter we are redefining the CPA Reshoring Index (CRI) to refer to the market share held by domestic manufacturers in total US manufacturing demand. The Index came in at 69.0 for Q3 2020, indicating that US manufacturers lost just over one and a half percentage points as compared to Q2. The main driving force in this loss of share was the resurgence of imports in the July-September quarter last year as foreign manufacturers resumed production after the Covid shutdowns and cargo shipping brought more foreign goods into the US.
The CPA Reshoring Index measures US producers’ share of total US manufacturing demand. Total manufacturing demand is calculated by adding the dollar value of manufactured imports to the gross value of US manufacturing production less exports. All data comes from federal government sources. The CPA Reshoring Index is the first published index measuring domestic market share in US manufacturing demand. Previously, we published the Reshoring Index as the change in the level of market share between quarters. However, the market share figure itself is more intuitive and understandable and we are now standardizing on that measure as the CRI. The data comes with a time lag because the US Bureau of Economic Analysis publishes gross value of manufacturing output with a lag of some 3-5 months after the end of each quarter.
From 2002 until 2019, the US lost eight percentage points of US manufactured goods market share (see Figure 1). At today’s values, with a US manufactured goods market worth $7 trillion, that represents a loss of $560 billion of value.
The quarterly CRI shows a similar trend. With quarterly data, the bottom is more clearly visible, in Q4 of 2017. The data is highly seasonal due to highly seasonal import data. Imports are generally larger in Q4 and smallest in Q1. Ignoring the seasonality, it’s clear that domestic market share has been trending slightly upward since 2018. The first two quarters of 2020 saw unusually large increases in reshoring or domestic share due to dramatically reduced imports as the Covid crisis shut down much of Asia’s manufacturing in Q1 and then restrained shipping in Q2. In Q3, imports rose and the Reshoring Index fell. But it still remained above the low points in 2017 and 2018. While our trade deficit in 2020 rose by almost 18%, the CRI came in at 69 in Q3 2020, slightly better than the 68.7 for Q3 in 2019. The bad trade deficit figure is due to the steep fall in exports (goods exports fell by 13.2% in 2020). Both goods imports and US domestic manufacturing gross value produced were less impacted by the Covid shutdowns, falling by around 7% each.
Reshoring Index by Manufacturing Subsectors
Table 1 looks at the Reshoring Index for the 19 subsectors of manufacturing, comparing the Index for the first three quarters of 2020 with corresponding figures for 2019 and 2010. The columns at the right compare the average Reshoring Index for the first three quarters of last year with corresponding figures for 2010 and 2019. In most subsectors, the Reshoring Index, or domestic producers’ share rose in the first two quarters because imports were more impacted by Covid shutdowns than domestic production. In the third quarter, domestic share fell in most subsectors as imports caught up. For example, in the furniture subsector, domestic share in the first two quarter of last year was 66.8 and 68, well above the 64.1 level of 2019. But in Q3, the domestic share fell back to 61.8, well below the 2019 level. When all three quarters of last year are averaged together, the domestic share was above the 2019 level in all but five subsectors. However, when Q4 data becomes available, high levels of imports are likely to reduce the domestic share for the full year 2020.
| Table 1 – Reshoring Index by Subsector | |||||||
| 2010 | 2019 | 2020-Q1 | 2020-Q2 | 2020-Q3 | 2020 Q1-3 change from 2010 | 2020 Q1-3 change from 2019 | |
| Manufacturing | 72.1% | 69.4% | 71.1% | 70.6% | 69.0% | -1.9% | 0.8% |
| Durable goods | 61.9% | 61.1% | 63.2% | 63.2% | 61.6% | 0.8% | 1.6% |
| Wood products | 85.4% | 85.4% | 86.4% | 85.7% | 83.5% | -0.2% | -0.2% |
| Nonmetallic mineral products | 83.7% | 83.9% | 85.7% | 87.1% | 84.9% | 2.2% | 2.0% |
| Primary metals | 69.6% | 69.0% | 65.8% | 45.0% | 56.5% | -13.8% | -13.2% |
| Fabricated metal products | 84.6% | 82.4% | 83.1% | 83.1% | 81.3% | -2.1% | 0.1% |
| Machinery | 63.2% | 58.9% | 61.7% | 63.4% | 61.9% | -0.8% | 3.4% |
| Computer and electronic products | 34.1% | 32.4% | 36.9% | 38.1% | 33.8% | 2.1% | 3.8% |
| Electrical equipment, appliances, and components | 50.6% | 38.8% | 40.4% | 42.6% | 35.4% | -11.2% | 0.7% |
| Motor vehicles, bodies and trailers, and parts | 62.1% | 65.7% | 65.9% | 75.2% | 70.8% | 8.5% | 4.9% |
| Other transportation equipment | 80.6% | 72.6% | 76.0% | 79.9% | 76.3% | -3.2% | 4.7% |
| Furniture and related products | 67.2% | 64.1% | 66.8% | 68.0% | 61.8% | -1.7% | 1.5% |
| Miscellaneous manufacturing | 50.2% | 43.3% | 49.6% | 62.0% | 51.3% | 4.1% | 11.0% |
| Nondurable goods | 82.1% | 79.3% | 80.0% | 79.1% | 78.3% | -2.9% | -0.2% |
| Food and beverage and tobacco products | 92.9% | 90.4% | 90.5% | 90.2% | 89.7% | -2.7% | -0.3% |
| Textile mills and textile product mills | 63.3% | 57.7% | 56.6% | 38.0% | 37.8% | -19.2% | -13.6% |
| Apparel and leather and allied products | 12.6% | 7.2% | 8.9% | 16.1% | 8.9% | -1.3% | 4.1% |
| Paper products | 87.4% | 88.8% | 89.8% | 89.9% | 89.6% | 2.4% | 1.0% |
| Printing and related support activities | 93.6% | 93.2% | 95.3% | 94.8% | 93.9% | 1.1% | 1.4% |
| Petroleum and coal products | 88.6% | 88.8% | 90.6% | 89.2% | 89.7% | 1.2% | 1.0% |
| Chemical products | 75.3% | 71.3% | 70.8% | 71.0% | 72.2% | -3.9% | 0.0% |
| Plastics and rubber products | 82.2% | 77.1% | 79.3% | 79.3% | 76.3% | -3.9% | 1.2% |
|
Source: US Bureau of Economic Analysis, US Census, CPA calculations |
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The comparison with 2010 shows that even with the bump in domestic share caused by the Covid shutdowns, the US has still lost billions of dollars’ worth of domestic manufacturing sales over the past ten years. In total manufacturing, domestic producers have lost 1.9 percentage points of domestic share between 2010 and the Q1-3 average for 2020. Some of the worst losses are in electrical equipment, where we lost 11.2 points and textile mills, where we lost 19.2 points. On the bright side, we gained 8.5 points of share in motor vehicles and 2.1 points in computers and electronics.
Looking at the sources of manufactured imports by nation, China has lost considerable share in the US market for manufactured goods since 2017. Table 2 shows that China’s share has fallen from 7.64% to just 5.92% in the first three quarters of 2020. Since this is a $7 trillion market, that loss of 1.72 percentage points translates to $120 billion a year of lost business. For many other import sources including Mexico, Canada, Japan and Germany, the COVID crisis reduced their 2020 share of our market due to the combination of Covid shutdowns and shipping difficulties. However, other nations, including Switzerland, Vietnam, Ireland, and Taiwan are on clear uptrends and taking a growing share of the US manufactured goods market, despite Covid disruptions. Vietnam’s growth would seem to be due to the routing of Chinese goods through Vietnam, along with the establishment of new factories in Vietnam to avoid China tariffs. For Switzerland and Ireland, pharmaceuticals are a key driver of increased exports into the US. For Taiwan, growing US demand for electronics explains the increase, as Taiwan is a leading producer of chips and electronic circuit boards.
| Table 2-Top Ten Manufacturing Import Sources, US Market Penetration | |||||||
| Nation | Share of US Manufacturing Market | ||||||
| 2017 | 2018 | 2019 | 2020-Q1 | 2020-Q2 | 2020-Q3 | 2020 Q1-3 Avg | |
| China | 7.64% | 7.55% | 6.24% | 4.33% | 6.62% | 6.81% | 5.92% |
| Mexico | 4.30% | 4.36% | 4.52% | 4.51% | 3.15% | 4.62% | 4.09% |
| Canada | 3.20% | 3.08% | 3.03% | 2.97% | 2.38% | 2.84% | 2.73% |
| Japan | 2.04% | 1.97% | 1.96% | 1.89% | 1.47% | 1.53% | 1.63% |
| Germany | 1.68% | 1.67% | 1.66% | 1.69% | 1.42% | 1.56% | 1.56% |
| Switzerland | 0.48% | 0.49% | 0.52% | 0.68% | 1.66% | 0.97% | 1.10% |
| Vietnam | 0.68% | 0.67% | 0.91% | 0.99% | 0.98% | 1.32% | 1.10% |
| Korea, South | 1.08% | 1.03% | 1.07% | 1.07% | 1.13% | 1.00% | 1.07% |
| Ireland | 0.71% | 0.75% | 0.81% | 0.94% | 0.93% | 0.79% | 0.88% |
| Taiwan | 0.63% | 0.62% | 0.74% | 0.76% | 0.89% | 0.88% | 0.84% |
| Source: US Bureau of Economic Analysis, US Census, CPA calculations | |||||||
Looking forward, manufacturing output is likely to return to close to normal levels in the first half of this year, as US manufacturing output was just 4% below 2019 levels in Q3. Imports will take longer as global supply chains have proven to be more unreliable than domestic production in this crisis. Parts shortages are hampering production, and the difficulty of obtaining crucial parts due to container shipping unavailability has hamstrung manufacturers in the US and elsewhere. But when those difficulties are ironed out, there is likely to be a new surge of imports.
The Reshoring Index looks likely to remain in the high 60s, indicating an import share of manufactures over 30%. That’s because many of the key growth industries of the next decade are industries where the US has a small and/or shrinking share, such as electronics and pharmaceuticals. That shrinking share has knock-on effects for the US machinery subsector and other industries that supply those consumer-oriented industries. In motor vehicles, the rise of electronic vehicles seems poised to reduce US market share, as the US has very little production capacity in key EV components like batteries and motors.
There is some reason for optimism. The Biden administration has taken measures that could boost US manufacturers’ share of the domestic market, including an Executive Order in favor of Buy American policies in federal procurement and another calling for 100-day reviews of four crucial US supply chains, in computer chips, batteries for EVs, pharmaceuticals, and critical minerals. However, the administration will need to follow these reviews with determined action. That’s because despite all the talk in Washington about pandemic-related shortages, multinational corporations continue to pursue offshoring aggressively. Earlier this month, GE Lighting, which is now owned by a private equity-backed electronic home automation startup Savant Systems, announced that it is shutting down an assembly line at its Bucyrus, Ohio plant that makes Walmart “Great Value” LED lightbulbs, and moving the production to China, with a loss of 81 jobs.
As Antonio Wegner, 21, one of the workers slated to lose his job, told Business Insider: “When you ship American jobs to China, who’s going to buy your product? You’re leaving families with no other option, but to pretty much work at fast-food places, making eight bucks an hour.”
