Investors Focus on Reshoring Amid Geopolitical Shifts
Investment strategists are highlighting the need to invest in structural economic shifts, including the move to a multipolar world, resource competition, and supply chain reshoring. EasyEquities' CIO Shaun Krom advised on investment strategies, including specific ETFs, that capitalize on these trends driven by AI and geopolitics. The discussion indicates a growing capital markets focus on companies positioned to benefit from supply chain fragmentation.
- U.S. government initiatives like the CHIPS and Science Act, the Inflation Reduction Act, and the Bipartisan Infrastructure Bill are collectively investing over $1.8 trillion to incentivize the reshoring of manufacturing, particularly in the semiconductor and green energy sectors. Since the introduction of the CHIPS Act, companies have announced over $231 billion in new semiconductor and electronics investments. - Despite strong interest in reshoring, Kearney's 2025 Reshoring Index experienced a significant drop of 311 points, indicating a "reality check" for the trend. This was driven by U.S. domestic manufacturing output growing by only 1%, while imports from 14 low-cost Asian countries increased by 10%. - The trend is not limited to bringing operations back to the U.S.; "nearshoring" to Mexico has also surged. In the third quarter of 2025, Mexico recorded a historic high of approximately $41 billion in foreign direct investment, with manufacturing accounting for 37% of that total. Since 2020, Mexico has surpassed both Canada and China to become the United States' largest trading partner. - Key challenges hindering reshoring include a significant skilled labor shortage in the U.S. manufacturing sector, higher production costs compared to overseas, and the need for substantial capital investment to modernize outdated domestic infrastructure. - While government incentives were a primary driver for reshoring announcements, the influence of tariffs is growing. In 2025, company announcements citing tariffs as a factor for reshoring increased by 454% compared to 2024, while those citing government incentives dropped by 54%. - Companies are increasingly adopting a "China+1" strategy, diversifying their supply chains by moving parts of their production to countries like Vietnam, India, and Mexico to mitigate risks associated with geopolitical tensions and trade disputes. - The electric vehicle (EV) industry is a major driver of reshoring, with significant investments in building new EV and battery manufacturing plants in the U.S. to shorten supply chains and meet rising demand. In 2023, the transportation equipment sector announced 31,367 new jobs related to reshoring efforts. - The long-term success of reshoring may depend on a "stickiness" factor; one study found that while escalating geopolitical risk prompts manufacturers to reduce reliance on foreign suppliers, a subsequent decrease in that risk does not lead them to quickly re-engage with foreign sources.
