Key Questions: Should Investors Get on Board With the Reshoring of American Manufacturing?

There is perhaps no stronger investment theme over the past two years than the growth of Artificial Intelligence and Data Centers (AI/DC). Investors have piled into the idea that AI would revolutionize technology and trigger significant efficiency gains. Today, the theme is largely understood with valuations being pushed higher on this “fourth industrial revolution.” Ever the opportunity seeking investors, we cannot help but think this trade may be in the later innings, and that there are new opportunities in different themes. In the vein of new themes, in this Key Questions piece, we seek to explore a hotly debated, out-of-consensus idea that investors should consider the investment case relating to America reemerging as a strong manufacturing nation.

What Is Reshoring?

Reshoring refers to the idea that more manufacturing capacity will return to the United States following a multi-decade period of “offshoring,” where manufacturing capacity was outsourced to low-cost emerging markets such as China and India. Investors may have heard of the term "onshoring," which refers to the same concept. “Near-shoring” refers to the idea of supply chains and manufacturing being located close to the United States but not within the nation’s borders. For this essay, we focus on the investment case for reshoring, which we view much more favorably than near-shoring.

A Brief History of the Reshoring Theme

Reshoring is not a new investment idea. During World War II, the U.S. was a dominant global manufacturer. As living conditions improved domestically, following a period of post-war prosperity, so too have domestic wages. Trade deals and economic conditions then incentivized the offshoring of manufacturing capacity to emerging markets where the cost of labor was lower, and regulations were less costly. China has taken advantage of this dynamic by becoming the new global manufacturing powerhouse. Other nations like India, Vietnam, and Japan, similarly benefitted.

Political Upheaval From Offshoring

The flow of manufacturing from the U.S. to Asian emerging markets drastically changed the U.S. economy. The U.S. was once a manufacturing powerhouse but is now primarily a services-based economy. The data could not be clearer. Manufacturing once represented 27% of nominal GDP in the late 1940’s. Today, that figure sits at around 10%. This has led to stagnation in the U.S. manufacturing sector. In the late 1970s, the U.S. employed approximately 19 million full-time laborers in the space. Today, that number approximates 12.5 million. In just a generation, millions of U.S. jobs were lost to offshoring, with manufacturing communities being decimated by this loss of capital. With millions of workers being laid off, many have turned to politicians to demand policy change.

The Manufacturing Pendulum Swings Back

In our view, we are in the early innings of a structural return of domestic manufacturing capacity. In President Trump’s first administration, he led policy efforts that resulted in favorable reshoring legislation such as an early wave of Chinese tariffs, paired with the 2017 Tax Cuts and Jobs Act (TCJA). COVID-19-era disruptions offered additional support for the theme as supply chain strain led to a realization by management teams that foreign manufacturing facilities present a challenge for their supply chains. Today, we note that the second Trump Administration continues its efforts from the first administration by levying aggressive tariff policy against foreign nations. The Trump Administration also spearheaded passage of the “One Big Beautiful Bill” Act, which amends the TCJA to provide more favorable financial incentives for domestic construction via bonus depreciation.

More tangibly, the following is a list of several notable announcements:

• General Motors is investing $4 billion in its U.S. manufacturing plants over the next two years.
• Micron is expanding U.S. investments to $200 billion, spread between semiconductor manufacturing and R&D in Idaho, New York, and Virginia.
• NVIDIA will manufacture U.S.-made AI supercomputers for the first time, including Blackwell chip production in Arizona and its first U.S. factories.
• John Deere pledges to invest $20 billion in its U.S. manufacturing capabilities over the next decade. 

How Can Investors Benefit From Reshoring?

We believe that investors can benefit from this theme in several ways, particularly in the industrial automation and construction/machinery space. Industrial automation companies benefit from domestic reshoring as they sell the machinery, equipment, and software necessary to operate manufacturing facilities in the modern age. Construction companies, such as those that supply heavy-duty machinery, similarly benefit from reshoring because their machinery is needed for the construction of large manufacturing facilities. Some of these machinery companies also specialize in backup power systems, such as industrial generators, which are essential for facilities that must maintain consistent operation.

For more information, please contact your advisor.