According to the Reshoring Initiative, reshoring and foreign direct investment (FDI) job announcements for 2023 are up 11% from 2022. Reshoring is the process of bringing back manufacturing or business operations to the home country from overseas locations, driven by factors such as changing economic conditions and a desire to reduce dependence on foreign sources. Projections suggested that if this momentum persisted, the combined reshoring and FDI efforts would have contributed to the creation of more than 300,000 jobs by the end of 2023. In the first half of 2023, that prediction was on track, with job announcements in line with 2022’s record rate.
This surge in reshoring is notably driven by evolving dynamics in global supply chains and an increasing emphasis on achieving greater self-sufficiency. As the world grapples with supply chain vulnerabilities exposed since the start of the pandemic, the impetus for bringing production and jobs back to domestic soil has gained momentum. Construction spending in the US manufacturing sector through October was 70% higher year-over-year on more than $206 billion USD in spending (versus a ‘normal’ year of $60 billion in spending on average in the decade prior to the pandemic).
Notably, the White House has played a pivotal role in steering this trend by providing strategic guidance and financial support to companies and industries seeking to address these gaps. Initiatives such as the Inflation Reduction Act (IRA), CHIPS Act, and Infrastructure Bill have not only offered direction but have also instilled a sense of financial security, motivating entities to actively participate in reshoring efforts. This concerted approach aims to fortify domestic industries, enhance resilience, and bolster job creation, signaling a transformative shift in the global economic landscape.
Manufacturers stand to benefit by tapping into a range of available federal and state tax credits and incentives. In a competitive landscape, various states and communities actively vie to attract new corporate and manufacturing facilities, contributing to the creation of favorable economic conditions for businesses.
Additionally, companies exploring relocation or expansion opportunities may encounter the prospect of property tax abatements and economic development incentives:
- Property Tax Abatements: Companies exploring relocation or expansion opportunities may benefit from property tax abatements. This incentive involves a reduction or exemption from property taxes, easing the overall financial impact of acquiring real estate for manufacturing facilities.
- Economic Development Incentives: Jurisdictions often offer economic development incentives to attract businesses. These incentives can take various forms, including grants, low-interest loans, or other financial support, providing valuable assistance in offsetting costs related to moving and investments in essential equipment.
Collectively, these incentives serve as valuable tools, assisting businesses in offsetting the financial burdens associated with strategic shifts in their operational footprint. This includes costs related to moving, real estate acquisition, and investments in essential equipment, further sweetening the deal for those considering strategic shifts in their operational footprint.
Various credits and incentives are available at the state, local and utility levels, providing additional avenues for businesses considering reshoring. One federal program that can significantly alleviate the cost of reshoring is the Foreign-Trade Zone (FTZ) program. Operating within an FTZ allows domestic activities involving imported items to occur before formal customs entry. This unique arrangement enables items intended for re-export to bypass duty payments entirely, and for items sold in the U.S. market, duty payments are deferred. This not only provides a customs advantage but also helps level the playing field for domestic producers competing with their overseas counterparts.
On February 10, 2022, Kansas Governor Laura Kelly endorsed the Attracting Powerful Economic Expansion (APEX) bill, targeting businesses committing to invest a minimum of $1 billion over five years. This legislation offers qualified companies a range of benefits, including investment tax credits, partial payroll reimbursement, a percentage of eligible employee training and education expenses, partial real property tax exemption and a sales tax exemption for construction costs related to qualified business facilities. APEX allowed for a qualifying firm to be approved in each calendar year of the program’s duration, up to the sunset date of December 31, 2023.
While the costs associated with reshoring operations might initially appear high, the availability of tax breaks and incentives can significantly reduce overhead, resulting in overall savings. It's important to note that incentives alone cannot transform an unfavorable location into a good one, emphasizing the need for companies to collaborate with experts in location strategy and credit and incentives. This partnership helps determine whether a major relocation aligns with the company's best interests and strategic goals.
At MarksNelson, our team specializes in a comprehensive approach to support your reshoring journey. We go beyond the surface, dissecting the intricacies of your business and conducting a thorough cost analysis of the move. Whether your aim is to enhance cost-effectiveness, boost efficiency or see a positive increase in your bottom line by moving operations to the U.S., MarksNelson is here to guide you forward. Contact us today to see how we can help.
