Called near-shoring, the move to Mexico is paralleled in Europe with factories opening in Eastern Europe to serve Western European markets like France and Germany.
“We’re starting to see it in Mexico as well as in the U.S.,” said Theresa Wagler, chief financial officer of Steel Dynamics, a steel maker based in Fort Wayne, Ind. “Many companies now prefer security of supply over cost.”
Mr. Knizek of EY-Parthenon expects industries with complex and more expensive products to lead the resurgence, including automobiles, semiconductors, defense, aviation and pharmaceuticals. Anything that requires large amounts of manual labor, or that is difficult to automate, is much less likely to return.
For items like shoes or furniture or holiday lights, for example, “the economics are daunting,” said Willy C. Shih, a professor at Harvard Business School. “It’s hard to beat wages of $2.50 an hour.”
Although trade tensions and shipping delays are making headlines, Professor Shih added, China retains huge advantages, like a mammoth work force, easy access to raw materials and low-cost factories. “For a lot of what American consumers buy, there aren’t a lot of good alternatives,” he added.
But as the moves by auto and tech companies show, the United States can attract more sophisticated manufacturing. That has been a goal shared by Republican and Democratic administrations, including President Biden’s, which supports $52 billion in subsidies for domestic chip manufacturing.
How the Supply Chain Crisis Unfolded
The pandemic sparked the problem. The highly intricate and interconnected global supply chain is in upheaval. Much of the crisis can be traced to the outbreak of Covid-19, which triggered an economic slowdown, mass layoffs and a halt to production. Here’s what happened next:
“Incentives to help level the playing field are a key piece,” said David Moore, chief strategy officer and senior vice president at Micron. “Building a leading-edge memory fabrication facility is a sizable investment; it’s not just a billion or two here and there. These are major decisions.”