Geopolitical issues are slowly reshaping the outlook of global trade. It is true that China remains an attractive country for mass production, but big names in the manufacturing industry are looking into reshoring or nearshoring their businesses.

Reshoring is the process of bringing the manufacturing of domestic products back to the home country where they are usually sold. In comparison, the term nearshoring refers to the process of transferring these operations to a country nearer to home.

Analysts recently looked at reshoring and nearshoring initiatives in North America, specifically Canada, the United States and Mexico. According to a report by Freight Waves, Canada will benefit from a $14 billion battery plant that German automaker Volkswagen will build in Ontario. The battery plant will create over 3,000 jobs and add about $150 billion to the Canadian economy, said Canada’s Prime Minister Trudeau in a conference earlier this year.

However, nearshoring and reshoring activities seem higher in the US and Mexico. Recent data shows US and Mexico attracted a wave of high-tech factories in 2021. By 2030, the two countries will have more than 50 EV plants, and Mexican officials attributed more than $30 billion last year in foreign investment from nearshoring.

One of the reasons why Canada did not win as many investments as its neighbours is the shortage of labour and skilled workers in the manufacturing sector, says the Freight Waves report. A Canadian Manufacturers & Exporters Association (CME) survey conducted recently highlighted, “In the last year alone, labour and skills shortages resulted in economic losses totalling nearly $13 billion in Canada’s manufacturing sector.”

Chinese firms move closer to the US

Several factors led to growing reshoring and nearshoring activities in North America, says Rosemary Coates, founder and executive director of the Reshoring Institute. These include automation, labour costs, labour productivity and a need to diversify supply chains.

Research carried out by Reshoring Institute shows that China is no longer a low-cost country when it comes to global labour rates, reports Freight Waves. “China’s wages for manufacturing workers have increased significantly in recent years, averaging just under $15,000 a year,” it added.

In fact, even Chinese firms are impacted by the US-China trade rivalry, and many want to go to Mexico to remain competitive. Industry analysts say that a growing number of multinational companies in China are expanding their supply chain beyond Asia and nearer to the US.

According to South China Morning Post (SCMP), Chinese networking giant Huawei Technologies announced that it would work with the Mexican Agency for International Development Cooperation on a US$1.6 million programme to offer start-ups more cloud access.

“Finished factory goods are handily shipped from Mexico over a land border to the US, where they benefit from a three-year-old US–Mexico–Canada trade accord that cuts tariffs on a wide range of imports,” writes SCMP.

Reshoring as reason for falling Chinese exports

Analysts believe that reshoring is one of the top reasons why the US is not receiving fewer exports from China. They expect the fall in exported volumes to continue, especially in the textile industry.

Textiles and apparel exports to the US fell by 4% in the first four months of this year, reaching 21%. According to data from the US Department of Commerce, this percentage is nearly half of the total seen ten years ago, SCMP reports. A similar trend is seen in the furniture and toys industry. China’s share of US imports fell below 50% in January-April – a drop not seen since 2001.