Beyond Reshoring – What Comes Next

Now is the time to think strategically beyond reshoring to what comes next. Although the massive Trump tariffs were at least partially intended to drive lots of manufacturing back to America, it just hasn’t happened. Job growth in manufacturing in America has remained flat over the past two years,  despite so many companies that are currently rethinking their previous strategy of sourcing and manufacturing in China. Companies are reluctant to invest in new American manufacturing plants, equipment, and to hire additional employees. So if manufacturing isn’t coming back to America, what are companies doing now?

Small and Medium Businesses Are Exploring Options

Some American corporations, such as Apple, Intel, Nvidia, GE, and Whirlpool, have recently announced new investments in American facilities through capital equipment spending and major automation. But most small and medium-sized manufacturers simply cannot afford the huge investment in machinery or the minimum wage differential between low-cost country operations and the costs in the U.S. Instead, many of these smaller companies are exploring other country options as they exit China.

In a study conducted by the Reshoring Institute, we found that 96% of the senior executives at small and medium businesses said they were “doing nothing” in terms of investing and hiring in the U.S., because the economy is just too unstable. However, nearly everyone reported that they were exploring other worldwide manufacturing locations. At the top of the global locations list is Mexico.

Semiconductors and Pharmaceutical Production

Semiconductor and pharmaceutical investment dollars from the Chips and Science Act, passed in 2022, are fueling the expansion of production in the U.S., but many of these factories won’t come on line for 5-10 years. The Act establishes and appropriates $39 billion to a CHIPS for America Fund to bolster semiconductor manufacturing capacity in the United States by providing financial incentives. The Department of Commerce notes that new semiconductor manufacturing facilities are expected to create over 115,000 manufacturing and construction jobs across the country. Pharmaceutical production is also being expanded in the U.S.  Major global drugmakers have pledged hundreds of billions of dollars to construct domestic manufacturing facilities, and the US government is enforcing strict measures to secure critical medical supply chains that were identified as vulnerable during the COVID19 pandemic.

Building Inventory

Some companies are building inventory to hedge their bets against changes in tariff rates and inflationary prices of raw materials. But this can be a risky decision. Tariffs may increase or decrease based on the President’s policy decisions, making the inventory on hand overpriced or underpriced. In high-tech industries, there is also a major risk of parts and finished product obsolescence depending on the rate of product changes and product development. New versions of products and other changes in technology can result in overstocking.

Infrastructure

We also have major infrastructure issues in the U.S.  Not only are our roads and bridges in poor repair, but our electrical grid is woefully behind. As the energy needed for data centers increases dramatically, the aging U.S. electrical grid is strained to capacity.  As one energy-sector investment banker put it – “Even if we were to build thousands of new factories and increase American manufacturing capacity, we do not have the electrical capabilities to support it.”

Infrastructure upgrades are racing to keep up with the overall demand caused by data centers, electric vehicles, and population growth. Investment from the Infrastructure Act passed in 2021 is funding some new development, particularly around renewables, but not fast enough to support major reshoring of manufacturing.

Manufacturing in Mexico

Mexico continues to offer a compelling cost advantage for global manufacturers – in many cases, lower costs than China. Across the board, wage differentials for manufacturing labor—whether direct or indirect—can reach up to 80 percent compared to the U.S., even when factoring in the more generous benefits packages that Mexican workers expect. In Mexico, it’s not uncommon for companies to cover health care, child care, employee transportation, cafeteria plans, and provide attendance bonuses. These benefits aren’t optional for Mexican manufacturers; they are expected. Benefits are essential to talent retention in a competitive employment market.

Proximity to U.S. markets is yet another reason to consider Mexico. The development of cross-border commerce is increasing more than 250 % per year in land ports like Laredo. This growth is largely due to manufacturers relocating from China to Mexico, and the growth in the automotive sector. This proximity also addresses sustainability initiatives by manufacturing close to markets and thus reducing the overall carbon footprint of manufacturing.

The Reshoring Institute recently researched wage comparisons between the U.S. and Mexico, and the differences are quite significant.  In the chart below, border cities such as San Diego have a legally required minimum wage of $17.25/hr compared with Tijuana, Mexico, just on the other side of the border, where the minimum wage is $2.59/hr. Other U.S. border cities, especially in Texas, have lower minimum wages of $7.25/hr -still significantly higher than the Mexican minimum wage.

Population, Unemployment, and Minimum Wage Chart– U.S. / Mexico Border

Research by the Reshoring Institute 2026.  The full report on wage rates and other statistics is available here: https://reshoringinstitute.org/current-topics/

Manufacturers with high labor content in their products will find Mexico to be a compelling and cost-effective place to locate operations. Proximity to U.S. markets, lower tariff rates, and the potential for duty-free entry under USMCA are all reasons to evaluate nearshoring. Coupled with Mexico’s new President, Claudia Scheinbaum’s promise to build new industrial parks and her support for manufacturing, Mexico becomes a very attractive option.

This is a period of shifting strategies in global manufacturing, presenting new opportunities and challenges.