Trump’s tariffs are moving from pre-election rhetoric to reality. Investors looking to position their portfolios will be well served to appreciate the constant in this rapidly evolving trade picture – reshoring. After nearly three lost decades, companies, faced with this environment, are adapting by building manufacturing on US soil. This article explores tariffs, reshoring, and the reshaping of the US economy.
Key TakeawaysTo fully appreciate why tariffs and other reshoring promoting policies are so popular investors need to understand where the US has come from. Since China’s entry into WTO in 2001, the US has ceded nearly 10% global manufacturing share1 and shed over 4m manufacturing jobs2. Morgan Stanley estimates that the result was $6 trillion of cumulative lost output and $3 trillion of manufacturing under-investment.
During these 24 years industrial production decoupled from GDP and consumption growth and has fluctuated cyclically around the flat line. For investors, this has meant the industrial sector went from 14% of the S&P 500 in 1990 to just 7.5% today.
President Trump campaigned on a clear platform of tariffs. His marquee policy was universal tariffs of 10-20% which, if introduced, will take the US effective tariff rate from 2.6% today back to levels not seen since the 1930s. Since taking office the exact nature of tariff plans is still evolving forming a tapestry of potential actions.
At the macroeconomic level tariffs have varied implications – from higher government revenue, offsetting rise in the US dollar, to passthrough leading to a domestic price spike and potential for retaliation. Most economists estimate a hit to GDP and a price level change that could stoke inflation.
These impacts are hard to analyze and it is helpful to look at what is constant – these policies are meant to address manufacturing share loss and promote reshoring and reindustrialization of the United States.
Though Trump’s tariff policies are extreme, it is worth remembering that tariffs were widely used in his first term. These tariffs were actually extended under the Biden administration. In fact, some analysis suggests the US took a protectionist turn 15 years ago, suggesting this trajectory will endure for a long time.
On top of trade policy companies today face supply chain insecurity from war and deglobalization. In the most recent earnings, CEO of JP Morgan, Jamie Dimon said “Geopolitical conditions remain the most dangerous and complicated since World War II”.
Companies’ overwhelming response to an uncertain world and looming tariffs has been to invest in the United States. A record 2m reshoring jobs have been announced and nearly $1.7 trillion cumulatively invested in the largest mega-projects.
Manufacturing construction is booming and most companies are revising up their plans. In a recent Bain and Company survey 81% of CEOs planned to reshore supply chains up from 63% in 2022. Only 2% of these plans are said to be complete suggesting a long run way for reshoring³.
One aspect of the current tariff policy that is likely to prove a particularly strong accelerant for reshoring is its combination with the most significant industrial government policy in decades. In total, $1.85 trillion has been earmarked across three major bills IRA, CHIPS, and IIJA since 2022. The vast majority of these policies are expected to be left intact. These acts are disbursing money to support critical industries and building much needed infrastructure for reshoring firms. In fact, these industries and their local supply chains could see a further boost under Trump 2.0.
Semiconductors are a particularly good example. In part due to the passing of the CHIPS act the US is seeing a boom in semiconductor manufacturing construction. $450bn of private investment has been committed, the largest wave of such investment in the country’s history. It is not just US firms (Intel and Micron), but leading global companies (Samsung, SK Hynix, TSMC) investing heavily. In 2022 the US did not produce any leading edge logic chips but by 2030 it is forecast to account for 28% of the world's output.
On the ground the companies we speak to have been preparing for tariffs by investing in the US and helping others do the same.
| Company4 | What they are saying | Implication |
| “We’re well positioned on reshoring … we feel it is going to only continue as customers of these industries look to de-risk supply chains and have more locally available …” – Q3 2024 Results Call | Reshoring is accelerating as a result of tariffs | |
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“Tariffs is not a big issue for ABB. As you know, we have local-for-local strategy, where we are building up a sourcing structure locally. And that has been going on for many, many years. … U.S., we are going maybe from 80% to 85% with the investments we are doing in our operations.” – Q2 2024 Results call "Since 2010, ABB has invested $14 billion in the U.S. with plant expansions, operational improvements, state-of-the-art equipment, products, and people, making it the company’s largest market. With approximately 20,000 employees in more than 40 manufacturing and distribution facilities, ABB is investing, growing, and serving across America through industries that create jobs, encourage innovation, and achieve a more productive, sustainable future." |
Firms like ABB have been positioning for reshoring for some time |
| “I would say that in general, I think we have a very good formula now around how we manage tariff-driven cost increases. I think, quite frankly, I think the whole market and the whole industry has kind of figured this thing out …“ – Q3 2024 Results call | Leading US industrials are likely to price through tariffs | |
| “The current tariff situation is fluid, but based on our supply-chain regionalization strategy, learnings from prior tariff responses and planned price actions, we feel very good about our position … we expect the impact from Canada to also be de-minimis … Last, the situation in Mexico is evolving and we are prepared for a variety of scenarios. We are ready to implement price and surcharges to protect the P&L commitments of the company as these assumptions are embedded in our guide.” – Q4 2024 Results Call | Firms have prepared for risks including extra tariffs in Canada and Mexico |
Another clear implication of Trump’s tariffs policy is to put into question the strategy of nearshoring to lower cost locations like Mexico. Even before tariffs our analysis suggest that the strategy was fought with risk.
Trump tariffs are likely to lead to an acceleration of reshoring activity, the one clear aim of this policy. Companies facing tariffs and an uncertain world are reacting. Investors would be well served to appreciate new strategies in a landscape where geographic lines are being redrawn.