A trend known as reshoring, where companies are returning manufacturing to the U.S., is growing causing a massive challenge for China. Source: Sam Moghadam Khamseh/Unsplash Editor’s note: This content appears here courtesy of IMTS+. Read the original here . U.S. imports from China have been declining steadily since August 2022. In the first five months of 2023, the U.S. went from China’s largest export destination, to its third largest despite the U.S. economy being one of the world’s strongest. China’s mounting challenges include the impact of prolonged COVID restrictions, inflation, high youth unemployment and U.S. companies’ reshoring in an effort to de-risk supply chains amid geopolitical tensions and uncertainty. A recent Kiplinger forecast said, “China’s economy relies heavily on manufacturing and exports, but inflation and COVID restrictions have affected the status quo.” Trade data suggests acceleration of supply chain reshoring is the source of a 10-month consecutive drop-off of Chinese exports to the U.S. Data from the U.S. International Trade Commission (USITC) indicates the decline of imports from China to the U.S. has been considerable when compared to rising imports from other countries like Mexico. The fall-off has led to a contraction of China’s import share across major products. For the first time in 25 years, companies no longer see China as a priority for investment — 60% in 2022 to 45% in 2023 (Figure 1). Analysts expect the decline to continue as manufacturing is pivoting to the United States. Extreme rates of imports — “automatic reshoring” Currently, most reshoring involves “automatic reshoring.” The term refers to cases where new U.S. investments can produce products in categories where we have an excess dependency on imports. For example, cases where companies are closing supply chain gaps in electric vehicle (EV) batteries, semiconductor chips, rare Earths material and so on. Reshoring and foreign direct investment (FDI) by “country from” Localization is driving large cases of FDI in the U.S. primarily because of three drivers: The U.S. remains the biggest market in the world with a healthy economy and stable business climate relative to other countries. The incentives associated with the infrastructure and IRA bills are highly attractive. The risks associated with geopolitical tensions are minimized with U.S. production. Cumulatively, only about 20% of reshoring cases report “country from.” Considering the other 80% of cases reporting “country from,” we believe the true percentage of products from China/Asia to be much higher than what is reported. Of the “country from” FDI and reshoring cases reported, Q1 2023 data shows that most jobs are returning from (in rank order) Germany, China, Korea and Japan. Chinese FDI was quite aggressive a few years ago but has declined. Business outlook A recent German American Business Outlook survey of 200+ respondents found that 72% of German companies plan to increase investment in the U.S. in 2023. Of the companies that already have U.S. subsidiaries, 93% cited market size and customer demand for the location decision. Proximity to clients (71%) and market stability (44%) were cited as reasons to invest. U.S. import content — “country from” Mexico accounts for a substantial share of the U.S. manufacturing import market. U.S. imports of Mexican manufactured goods grew 26% since the spring of 2020, from $320 billion to $402 billion. U.S. imports from Mexico have a clear advantage over imports from China, since 40% of the content in Mexican imports is produced in the United States. Imports from China contain only 4% of U.S. content. Reshoring success Reshoring Initiative reporting illustrates the upward trajectory of the reshoring trend. If the current rate continues, new job announcements will reach over 400,000 by year-end. About IMTS+ IMTS+ is where you can find the personalities, innovations, and ideas that move the manufacturing industry forward. Watch, read and experience the stories around the power of manufacturing technology. Visit IMTS+ on IMTS.com .