The last few years have marked a significant shift in the landscape of American manufacturing and the dynamics of US supply chains. Legislative changes and global disruptions are triggering a resurgence in domestic production capabilities that is only getting started.
The Infrastructure Investment and Jobs Act of 2021 (also known as the Bipartisan Infrastructure Law, or BIL) and the Inflation Reduction Act (IRA) of 2022 provided a fresh rationale for a slew of manufacturers to base more production and manufacturing in the United States. Coupled with the still-lingering effects of Section 232 and 301 tariffs, the changes are creating big opportunities for manufacturing companies to move into or strengthen their presence in the US market.
Catalysts for change in US manufacturing
The BIL and the IRA create strong financial incentives for companies to develop or enhance their US domestic production and supply chain capabilities.
The BIL allocates more than $1 trillion for the modernization and upgrade of various infrastructure sectors over the next 10 years, including transportation (roads, highways, bridges, tunnels, and public transit systems), broadband, and ports and airports. It aims to bolster America’s infrastructure resilience and competitiveness while creating jobs and promoting sustainable development.
The IRA followed in its tracks with investments in climate change initiatives, healthcare, and energy security — and tax reforms to support these objectives.
Trillions in infrastructure improvements
The new laws collectively channel trillions of dollars toward critical infrastructure improvements and the shift toward clean energy — if project bidders can demonstrate their ability to implement the projects using materials both manufactured and sourced in the United States. At the same time, existing import tariffs (particularly Section 232 and 301) on critical manufacturing goods such as steel (a 25% tariff) and aluminum (a 10% tariff) as well as on a broad range of imports from China offer temporary protection to domestic industries against lower-priced, subsidized foreign competition. Consequently, companies equipped with the necessary domestic expertise and supply networks are poised to reap significant financial rewards.
Legislation is not the only factor driving the current trend for domestic manufacturing in the United States. There are lingering effects from the COVID-19 pandemic on supply chains, with some businesses still experiencing disruptions caused by labor shortages and logistical challenges. The prolonged impact of the pandemic underscores the need for resilient and diversified supply chains, leading many American companies to reconsider their offshore dependencies and prioritize domestic sourcing for critical materials.
Manufacturing migrates south — a case study
For a recent example of a manufacturing company aiming to take advantage of legislative incentives to supply a bigger market, consider the case of a North American construction material producer looking to expand into the United States. The company wanted to relocate supply chains to establish its production hub in the most advantageous location. It considered numerous factors, including travel limitations on the raw and finished materials and the distance to end consumers, as well as local taxation and labor laws. Another consideration was where the infrastructure investments driven by BIL would be most likely. The confluence of all these variables pointed south, to Texas and the Mississippi River Delta — and, ultimately, Memphis.
This aligns with the manufacturing industry’s broader migration south. Previously, manufacturing was concentrated in the Midwest in states like Ohio, Michigan, and Indiana, but recently the trend has been to move further south. The main drivers: more affordable energy, labor, and tax rates compared with states in the north, which are important factors to consider if a company is going to make the massive capital investment of setting up a new hub. The quality of living in some cities, such as Austin, Texas, also provides a strong draw for skilled workers, while strong universities and engineering schools supply a skilled workforce.
The strategic benefits of localization
The localization of supply chains in the United States offers several advantages to companies that maintain a domestic footprint. These include shorter lead times, reduced vulnerability to geopolitical dynamics, and proximity to domestic markets. This approach offers companies agility by enabling swift adaptation to changing market conditions, while also ensuring a stable and secure supply chain environment. Lower transportation costs and reduced carbon footprints can (partially) offset higher labor and energy costs and are often seen as contributors to a company’s environmental, social, and governance (ESG) efforts.
A paradigm shift in American manufacturing is underway. The confluence of legislative initiatives, global economic changes, and pandemic-induced supply chain realignments are not just temporary disruptions but signals of a more profound, long-term realignment toward domestic production and supply chain resilience.
This transition, exemplified by the manufacturing sector's southward migration, is a strategic response to a complex set of economic, logistical, and policy factors. It reflects a broader recognition of the need for agility, sustainability, and closer proximity to markets in the manufacturing process. As companies adapt and evolve in this changing landscape, the lessons learned and strategies employed will undoubtedly shape the future of American manufacturing, making it more resilient, efficient, and globally competitive.