While different forces, including protectionist trade policy, can reverse an offshoring trend, it is not always clear what the investment implications are for smaller firms. The author argues that there could be opportunities for investors canny enough to find them.

The following article comes from Mike Rode, senior investment director, at American Century Investments. It addresses the opportunities for smaller US firms in the “reshoring” of corporate activity to the US. To the extent that this is driven by tariffs – which are taxes – it might be debatable whether the smaller end of the business world is a net gainer, for example, if tariffs push up costs for commodities such as steel which is used by manufacturers. This is a contested issue.

Reshoring, it should be said, happens for different reasons – ensuring logistics against threats, new technologies and forms of wealth, changing taxes, government subsidies for preferred sectors, and new regulations. The impact and severity of change varies depending on whether these forces are isolated or combined. And at the base of all this is the argument about “globalisation” – a trend of interconnected trade, capital and human capital flow that has been a feature of much of the “West” since 1945, accelerating with the rise of China as a (sort of) capitalist power, after the Berlin Wall fell. 

Mike Rode 

Whatever the arguments, reshoring is a fact, and the investment implications are considerable. If there are opportunities, it is smart to investigate them sooner rather than later. Rode does so in this incisive and detailed article. As ever, while we value guest contributions, editorial disclaimers apply to views of outside writers. Please comment and respond if you wish. Email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

We believe that policies aimed at boosting US manufacturing capacity could potentially benefit small-cap stocks.

Once cast aside by many as a nostalgic ideal, reshoring has become a necessary response to global instability, fragile supply chains and shifting economic incentives. From semiconductors to electric vehicles, the reshoring movement may reinvigorate the US industrial and manufacturing sector. For instance, American policymakers have worried about the decline of domestic semiconductor production for years.

Although this issue doesn’t often grab headlines, its implications are real. Semiconductor chips are essential components that power everything from digital calculators to military fighter jets. The US faces serious risks by relying on countries such as China and Taiwan for these chips, especially if something disrupts the supply chains.

Micron Technology’s June announcement that it plans to invest billions in semiconductor manufacturing in Idaho and New York represents a significant step towards restoring domestic chipmaking capabilities and bolstering the US against potential supply chain vulnerabilities. This is just one reason why we believe that the reshoring trend could potentially boost the case for small-cap companies beyond 2025.

How reshoring affects US employment
The Covid-19 pandemic and the empty store shelves highlighted the need to reinvigorate domestic supply chains and manufacturing.

According to research by the Reshoring Initiative, job announcements resulting from reshoring and foreign direct investment (FDI) initiatives have surpassed 244,000 yearly since 2021, reaching a peak of 349,408 in 2022. 

Figure 1: Reshoring accelerates year-over-year, fuelling US job growth. Annual job announcements tied to reshoring and FDI.

Data from 31/12/2010 to 31/12/2024. 

Source: The Reshoring Initiative. Figures represent job announcements from production brought back to the US and from FDI.

This momentum is visible in places like De Soto, Kansas, where Panasonic recently completed a $4 billion electric vehicle battery plant – the largest private economic development project in state history. Such projects exemplify the broader reshoring wave across industries from automotive and semiconductors to pharmaceuticals and medical devices.

What’s powering the reshoring trend in 2025?

Several forces have fuelled reshoring’s renaissance:
-- The pandemic exposed the vulnerabilities of global supply chains. Shortages in critical goods – from surgical masks to toilet paper to microchips – caused companies to rethink their dependence on offshore sourcing.

-- The Trump administration has imposed aggressive and protectionist tariff rates on key trading partners. This policy encourages companies to launch or expand their manufacturing operations in the US, especially for advanced technology and healthcare companies. The administration has negotiated trade deals with countries worldwide, which should result in improved clarity on US policy and the implications for trading partners. We anticipate an increase in reshoring projects, which may boost gross domestic product (GDP) and earnings growth for smaller domestic companies.

-- Heightened tensions with China and its potential threat to Taiwan, a major chip manufacturer, are major concerns for US policymakers. The war in Ukraine, the threat of wider conflicts in the Middle East and broader global instability have made domestic production a national security imperative. US tariffs and export controls have further incentivised companies to localise operations.

-- Landmark legislation such as the CHIPS and Science Act and the Inflation Reduction Act has released hundreds of billions of dollars in federal incentives to boost domestic manufacturing. A recent example from the Trump administration included an announcement of tax credits for semiconductor manufacturers, which increased from 25 to 35 [per cent] for those who begin constructing new plants before 2026. These policies are designed to strengthen supply chains while encouraging private investment in critical sectors such as advanced technology.

-- Consumers increasingly want to know where their products come from, often opting for sustainable and American-made goods. These shifting preferences could influence where corporations obtain and produce their materials and the direction of their brand strategies.

Is the reshoring trend built to last?
While the reshoring trend has pointed upwards since 2010, it will still encounter difficulties. Labour shortages, permitting delays and the varying quality of infrastructure could hinder its progress.

Reshoring’s long-term success may depend on the extent to which the current and future presidential administrations support policies that are favourable to reshoring, the availability of a trained workforce and technological advancements. Still, the economic impact has already materialised. Manufacturing employment has rebounded to nearly 13 million jobs, particularly in the South and Midwest.

We believe that the implications could be significant, particularly for those focused on small-cap stocks. Small-cap companies – many of which are highly correlated with capital expenditures and derive most of their revenues domestically – are likely to benefit from the reshoring boom.

How reshoring could evolve after 2025
Reshoring has evolved from a novel concept to a significant aspect of the post-Covid economy. 

If companies establish manufacturing operations in the US, it could positively impact labour markets, influence capital allocation decisions and help shape investment strategies.

To the extent that the economy, political will and available resources continue to support reshoring, we believe that small-cap equities could benefit.

Disclaimer
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice. References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.