Shrinking US Capex Makes Re-Shoring A Charade

And in October,
Bank for International Settlements researchers
published an examination of supplier and customer relationships at the firm level, concluding:

All of these studies used different methodologies. The Bank for International Settlements effort is the most comprehensive, using supplier and customer data at the level of individual firms in all the major sectors of manufacturing. The Asia Times study, the first to appear, employed time-series analysis, comparing China's exports to intermediary countries with those countries' exports to the United States, a simple but robust methodology.

China's growing dominance of global supply chains is the result of chronic US underinvestment in manufacturing. In constant dollars, US manufacturers' orders of nondefense capital goods (excluding transportation) are where they were twenty years ago. Meanwhile imports of capital goods (also in constant dollars) have grown more than fourfold in the past twenty years. The US now imports more capital goods than it makes at home.

If the US set out to increase domestic output in order to reduce its $400 billion a year trade deficit with China, it would first have to import more capital goods.

America's capital stock of manufacturing equipment has barely changed since the recession of 2000. In current dollars, the difference between the long-term trend and the stagnation of the past twenty years adds up to roughly $1 trillion – almost five years' worth of total corporate spending on manufacturing equipment.

Until the United States invests in manufacturing technology, infrastructure and education, its dependency on Chinese supply chains will only grow. It should be no surprise that re-shoring turns out to be a charade, a soporific offered by politicians in place of a real solution.

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