Reshoring: how jobs came flooding back to America

Cheap fuel is bringing jobs back from China to America’s former economic graveyards

16 February 2013

9:00 AM

16 February 2013

9:00 AM

It is 20 years since the US presidential candidate Ross Perot railed against globalisation, warning of a ‘giant sucking sound’ as millions of jobs left America and went to foreign factories. The presidential hopeful warned that a new economic curse — offshoring — would shut steel mills and factories without government protection. But listen closely and a different sucking sound can now be heard: jobs coming back to America.

A country once panicked about ‘offshoring’ has a new buzzword: ‘re-shoring’. The US recovery is weak and unemployment remains high. But quietly, manufacturing has been making a strong recovery, adding 500,000 jobs since the end of the recession. America, influential analysts believe, is on the verge of a manufacturing renaissance.

The ability to extract gas from shale rocks, by hydraulic fracturing, has helped gas prices collapse to about 20 per cent of the equivalent price of oil, according to HSBC. And less than half its price in most European countries. It suddenly makes sense to build in America again. For the energy-intensive chemical and metal industries, it makes more sense than ever to go west.


Dow Chemical, for example, is building an ethylene production plant in Texas to take advantage of more affordable energy. US Steel is investing $100 million in a new plant in Ohio — it now makes sense to use gas, instead of coal, to purify iron ore. ‘I don’t see there’ll be much left of Europe’s chemicals industry,’ the boss of one of Europe’s major energy groups told me recently. But cheap gas tells only a small part of the story. A stronger Chinese yuan and a weak dollar have handed US exporters a major competitive boost. The quadrupling in oil prices over the past decade has also sent transportation costs soaring.

It all adds up. Some companies may now find that it makes more sense to manufacture closer to their customers, particularly those whose products are heavy relative to their value. Caterpillar is investing $120 million making excavator machines in Texas, work that was previously carried out in Japan. AGCO, which makes tractors and heavy machinery, has recently boosted production in the US. Last year a Boston Consulting Group survey found that a third of America’s biggest manufacturers were considering moving work back to America from China.

Money aside, the long supply chains carry risks — just ask food groups caught up in the horsemeat scandal. Some US manufacturers were badly hit by supply line disruptions after the recent string of natural disasters in Asia. At the very least, they’ve learned it’s essential to diversify the supply chain. Manufacturing closer to your customers also brings other benefits: it’s easier to introduce innovations, there’s less currency risk and fewer neighbouring competitors stealing your ideas with impunity.

The re-shoring phenomenon is not a magic wand that will abolish the American deficit, slow its rising wage costs or cut its taxes and regulations. All of these remain problematic: PWC believes that the US companies pay higher tax than in any other developed nation. But US energy prices are now — as Germany’s BASF recently put it — ‘the lowest in a generation’. A Canadian methanol producer, Methanex, has already moved one of its Chilean plants to Louisiana and may move another. The jobs are going to parts of America that had been written off as economic graveyards.

Could it happen here? So far, there’s little sign that more expensive oil, a cheaper currency or even a competitive corporate tax rate have lit the spark for a British manufacturing renaissance. It doesn’t help to be so exposed to the struggling eurozone economy — although the export sectors in Ireland, Spain and Italy are all much stronger than in the UK. Britain’s recovery is also bedevilled by its financial system: credit conditions are easier in the US, where the banks are well-capitalised and the housing market is now recovering.

Now and again, David Cameron reminds us that Britain is engaged in a fierce ‘global race’ — and he regards Asian countries as the main competitors. The idea of multinational manufacturing giants being poached from the developing world to the American rustbelt is something that no one, not even the Americans, imagined a few years ago. The global race is still in its opening stages, but Uncle Sam may be about to take an early lead.

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Show comments
  • http://twitter.com/Waltroon Walter Ellis

    America has enormous, previously unimagined, reserves of oil and gas, and, frankly, it doesn’t care what it has to do to haul these out of the earth and plough them right back into the economy.

    What should Britain do if it wishes to join the party? Sure, there is shale gas down there, but England is one of the world’s most densely populated countries. If it turns out that the Yorkshire Dales are sitting on enough natural gas to keep the UK supplied for 30 years, what should we do? Should we dig up the Dales and get frackin’, or should we maybe sit down and give the whole business a little bit more thought?

    The U.S. is HUGE, and even if Americans gave a shit (which most of them don’t), most of the known oil and gas deposits are in remote areas with small populations. The middle classes in England bitch about high-speed train routes and wind-farms. How will they react when the Government tells them the green belt has to be tightened another three notches, maybe four, so that more foreign-owned engineering factories can open near Oxford, or Chester, or Ely, employing mainly immigrant labour?

    The oil and gas will still be there ten years from now. For once, let’s give ourselves a break and try to work out what we plan to do and how we intend going about it. Or does everybody thinks BP knows better?

    • The Wiganer

      Although I don’t agree with you, it is good to read someone making a case against fracking that avoids vitriolic abuse.
      I think that if people in Oxford like having their lights on then they have to accept that energy comes from somewhere. The people who live near Drax and Sellafield are hardly suffering agonies but is it fair that they should be blighted so someone else can sit pretty?
      Fracking is nowwhere near as destructive as coal mining yet there are millions of people in this country who curse the tories for closing the mines. Many of the same people now oppose fracking. Funny how the world turns.

      • http://twitter.com/Waltroon Walter Ellis

        Thanks, Wiganer. I have no doubt that sometime soon the first shale gas will be pumped out from beneath Shrewsbury (or wherever), and I can’t pretend that the country doesn’t need energy … I could do with some myself. I just wish that we could proceed with caution and, at the same time, put a bit more thought into the longer term. As the villains say on Bond, “we are not so different, you and I.”

  • AlexanderGalt

    U.S. CO2 emmisions have fallen 14% since 2008 and the economy is producing more.

    Why aren’t the Greens whooping with joy and performing cartwheels?

    Answer: Fracking.

    There’s another great take on this in: “Frack Off” at: