Podcast: Will Trump's tariffs impact North American reshoring initiatives?

Rosemary Coates is the executive director of the Reshoring Institute, as well as the President of Blue Silk Consulting. She has more than 30 years of experience in supply chain, reshoring, and nearshoring, and is the author of several books including 42 Rules for Sourcing and Manufacturing in China, and the Reshoring Guidebook.

Rosemary appeared on the podcast in 2024 to talk about the general impact that reshoring initiatives were having in North America, and in this new episode she unpacks some of the ripple effects on reshoring that might occur as a result of new 25% tariffs on goods from Canada and Mexico curretly being proposed by the Trump administration.

Below is an excerpt from the podcast:

PS: The last time you were at the podcast, you talked about reshoring issues when we were in the last year of the Biden administration, and one of the reasons we're talking today is that we are now in week two of the second Trump administration. And so we're going to look at what impact his proposed policies might have on reshoring.

Maybe we can start with the first question, which is, what's your sense of the current state of reshoring in the U.S.? And could you mention the policies that you think have had the most influence moving the needle on stuff like this, like USMCA or the Inflation Reduction Act?

RC: As we had talked in the past, there is a general movement towards reshoring. We've been around for 10 years, so we've been doing reshoring projects since 2014, so a long time. We've seen a steady increase in concern over manufacturing in foreign locations and a desire to bring manufacturing back, either through reshoring to the U.S. or nearshoring, mostly to Mexico. That's been a gradual increase and then after the pandemic there was a lot of interest; many companies really suffered through the ups and downs of the pandemic and trying to source overseas and not being able to get parts they needed on time, so there was a giant uptick there.

Now again, we're seeing another big spike in interest after Trump was reelected. Many companies are very concerned about the increase in tariffs and the changes in international policy that may affect global supply chains. We're seeing once again a significant impact and uptick in reshoring interest. I'll tell you, phones are ringing. We're pretty convinced there's lots of companies asking for help these days.

PS: That’s interesting… would you say the policy decisions of the past four years have nudged reshoring along as well, or is this a case where, it seemed like a lot of the manufacturing sector there was a big wait and see attitude, waiting for interest rates to come down, waiting for other factors before manufacturers made big moves like this.

RC: All of those economic factors go into the decision making process and they have for a long time, although I would say in the last few years there's much more heavy analytics when it comes to making that decision for reshoring.

The three big acts, so the Inflation Reduction Act had significant funding for green energy, so we're seeing a lot of green energy development and that's been going on the last couple years. There's certainly the CHIPS and Science Act, which has really fueled the fire in building semiconductor capability in the U.S. We were sorely lacking for so many years and way behind in production, and now we're building plants in Arizona, New Mexico, Idaho, Texas, Ohio and New York, all over the place. We're building semiconductor plants which should come online within the next 5 to 10 years.

And then the Infrastructure Act, the third big one of course, has got billions of dollars in funding to repair our roads and bridges and update our airports and so forth. That's really important because no matter where you are in the production scheme of things, you need to be able to move your goods over those roads and through those ports and so forth. Without having those repairs done, with major bridges that are out across the country or need in need of repair, it's really important to have that money there.

Now the thing is though, these acts were passed during the Biden administration and the funding was made available, but it takes a long time to have that move through the system so that projects can actually be started. So even though the acts were passed two or three years ago, we're just now starting to see some of that funding come through. So there's not as much activity I think over the last couple years as we're going to see now going forward, a lot more emphasis going forward.

PS: All those factors you mentioned bring back a story that someone told me who works in semiconductor chip manufacturing, in a finishing plant in Pennsylvania. He would often say that the challenge – this is about a year and a half ago – the supply chain challenge was such that they always had something to work on through the week, but for a while there you weren't sure which raw materials or which chips would come in at what time. They had to become nimble by necessity and change over the lines once they knew what materials were going to show up. I always think of reshoring as an effort to make sure that you do inject a certain greater predictability into your workflow.

RC: Yeah, that’s really true, predictability is what all businesses hope for, right? An unpredictable environment is very difficult to manage. But there are lots of global supply chains where there are significant parts that can't be produced anywhere else. Suppliers have to be redeveloped and so forth. But there are also complicating factors. Take the war in Ukraine, for example, it's halfway around the world and we're not thinking so much about it every day anymore. But Ukraine produces about 40% of the world's neon gas, and neon gas is used in the etching process for semiconductors. When the war started, the Russians bombed the neon gas factories, those were some of the first to go, and it instantly caused a worldwide shortage in neon gas and a semiconductor shortage because there wasn't raw materials to produce those semiconductors.

And you think back a year or two ago when there was a big shortage in automobile production because they couldn't get semiconductors to finish the autos. A lot of that was due to the pandemic and changes in demand, but also the lack of neon gas available to produce those semiconductors. There are other instances that you can talk about that are sort of remote and you wouldn't think about it affecting your production, but the world has changed so much in the way we source products and find where they're coming from has changed significantly, and as a result of that, it has introduced much more risk into global supply chains.

PS: A lot of our listeners are in condition monitoring roles at the plant, and one of the more popular technologies of the past couple of years has been visual leak detectors. They put a lot of ultrasonic microphones in the tool, you point it at, say, a gas tank and instantly the microphones pick up whether there's an ultrasonic leak. It also visualizes where the leak is. We've heard about a lot of folks getting a return on those investments in that technology when they focus on things like neon gases, other expensive gases. We do know on the on the maintenance side, there's been this focus to make sure you know what you've got and you're protecting it, and that you're focusing on any leaks in those systems, to keep the powder dry when it comes to neon gases and other materials in short supply.

RC: When I first started, many years ago, I worked in a solar turbines production plant in San Diego. Solar turbines, as it was called. At the time I worked in the purchasing department and we used to look up in these big green books called Thomas Register. We'd look up a supplier and their name and address and we’d call them up and ask them for availability on a part, and then we’d hand-type a purchase order and put it in the mail. In those cases, our supply chains short, mostly domestic, printed matter and so forth. Man has the world changed! Today we source around the world and don't think twice about it. We're looking for sources, the best sources, the most economical sources around the world and as a result of that, we've introduced all this risk. In places where there's no transparency in what's happening, that creates all kinds of risk. It's kind of a scary environment for manufacturers or people working on repairs when you don't know when the part’s going to come in. These are things that have really changed the way we work.

PS: Speaking of change, let's talk about the new administration that came into power last week. One of the reasons we're talking is to take a look at some of the economic policies that this administration may either be continuing from the last one or departing from. Talking about policy and not politics, with some of the things the Trump administration is doing when it comes to either tariffs or other policies, how do you see them continuing this reshoring effort?

RC: I think as a general rule, the saber rattling about tariffs has caused a lot of companies to source early. There was a huge jump in port traffic over the past few months for companies that are importing goods in advance of a potential tariff on particularly China, but other countries also importing. So there's been an uptick in that regard for preparing, but I think the bigger issue is there's a lot of talk out there – certainly Trump has threatened tariffs around the world, and so forth – and that causes this uncertainty issue.

The one thing that businesses just hate is uncertainty. If you know there's going to be a tariff in five months or 12 months or whatever, you can plan for it, you can prepare in in different ways. But if you don't know, if you know the policy is one way, one day, and another way the next day, that makes it an incredibly difficult operating environment, and I think there's some frustration as a result of that. Maybe once we stabilize a little bit and we know what tariffs are coming, it'll help calm down the business environment.

PS: We’re coming off of the weekend, where there was a negotiation with Colombia over flights with immigrants being deported from the U.S. and also a threatened tariff if Colombia didn't take them. I thought it was interesting to see that the threatened tariff was removed once the other policy goal was achieved, so in that sense I'm curious to know about how this administration is going to use these tariffs. Are they all saber rattling to get other concessions? My specific question for you is, do you see these proposed tariffs on Canada and Mexico as possibly being a very far in advance bargaining position ahead of looking at the 2026 review of USMCA?

RC: That's a big topic of interest these days. I think first of all, there's some question whether it's even legal to attach new tariffs to Mexico and Canada and not violate USMCA. There's going to be some legal challenges in that regard, and there's some level that says the President can declare an emergency and then can apply tariffs. But I still think it's going to be a legal mess for a while. USMCA, as you mentioned, is subject to renegotiation in 2026 and I think we'll see some changes as a result of that renegotiation.

In the meantime, threats about putting tariffs on Mexico are going to have a huge effect. I can't tell you how many companies we helped relocate from China to Mexico in the last 4-5 years. The growth in Mexico has just been astounding. They have a new president in Mexico, Claudia Sheinbaum, and she has promised to open 100 new industrial parks that will help fuel the return of manufacturing, or the building of new manufacturing in Mexico.

It's a big push, and even without that over the last couple years, for example, I was down in Laredo last year, and we were doing quite a bit of research on Mexico, we're still doing that and publishing it on our website. We were down in Laredo to have a look at what was going on in the cross-border traffic. Laredo has become the largest U.S. land port. The largest US land port, Laredo, is just a little town, a little border town! But the growth in cross-border commerce has just been tremendous.

So we stood at the International bridge and watched the trucks coming across the border, and I've been all over the world and seen a lot of stuff, but this was astounding. These trucks, they have developed technology where they slow to about 20 miles an hour. They drive through a corridor of technology and sensors which weighs the truck, they can visualize what's in the truck, so they make sure there's no contraband or illegal immigrants in the back of the in the trailer. They can do facial recognition on the driver. They can match the barcodes instantly to the paperwork that's been pre-submitted and if everything matches up, the driver gets waived on through.

They never slow down. They don’t stop. They just drive through this corridor and they process 14,000 trucks per day. I keep asking, “are you sure that's per day?” And the Port Authority was saying, “yeah and it's building, it's growing.” They've experienced like a 230% growth rate over a year's period. It's really astounding the cross-border commerce that's taking place, and I know immigration gets all the publicity, but the growth in commerce is probably the bigger story.

PS: Do you see either of the other nations involved in USMCA trying to renegotiate that, or are they going to look at it in the lens of that success, for example, down in Laredo and try and drive more of that?

RC: Well, you know, I think the intent of applying tariffs is to get control over illegal activity along the border, so illegal immigration and drugs and so forth. It's not to punish the businesses. But the way you get attention to that or get something done, I guess, the feeling is to apply those tariffs, then hopefully that will force the hand of the Mexican government to try to crack down on some of that illegal activity.

I don't know what's going to happen. I mean, it's so unpredictable, every day I wake up and wonder what's going to happen today. But we're going to experience some pain over the over the next few months, I think, and that would be in terms of unpredictability as well as increase in tariffs and so forth.

PS: Let me get you out of here with one more question about automation, because it's my understanding that automation technologies are also helping to drive reshoring over the past 5-10 years. Given that part of reshoring’s goal is not just a streamline supply chains, but also to bring back jobs in U.S., Mexico, places like that, what's your take on how this administration is going to approach automation technologies?

RC: Well, there's no slowing down automation, and for sure there's going to be continued investment in automation. We did a comparison of labor rates around the world, we looked at 12 countries and 10 job categories, and you can see that China is no longer the low-cost country. The low-cost countries are more like Vietnam and central Mexico, Indonesia, places like that. China's right in the middle, the wages have gone up significantly, but the U.S. and Western Europe are at the high end.

With respect to automation, the idea is to extract that labor cost, so if you automate things, you take labor out of the equation and that's how you make it competitive. The jobs are probably not coming back, or at least not the low-cost unskilled jobs, and in my opinion that's OK. What we want to come back is advanced manufacturing, with more-skilled laborers, and they pay a better wage because they're in an automated environment. People, instead of putting pegs in holes, are now running the robots that put pegs in holes, and are fixing the robots.

The number of jobs is probably never going to reach the level that it was in the past. But the kinds of jobs that are coming back are much better, they’re higher paying, they're more skillful, they're more productive. There's all kinds of goodness and upside to that model. I think automation is here to stay and we're going to see it build, and more and more of it come back.

PS: Rosemary, I can't thank you enough for being on the podcast today and sharing your insights on the transition in the presidential administrations, and it sounds like we should talk again in about 6-8 months and find out what's changed in the meantime, because things are going to change fast, right?

RC: Absolutely, let's do it! Thank you, Tom.

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