Reshoring Manufacturing Operations
Posted by John George on April 08, 2025
The article discusses the trend of reshoring, which involves bringing manufacturing operations back to the United States from abroad. This movement has gained attention due to President Trump's tariff plans aimed at encouraging domestic production.
Cost Considerations
Motivation for Offshoring
- Manufacturers often move operations abroad to benefit from lower labor costs. However, these savings are increasingly offset by tariffs, customs, and shipping costs.
Domestic Incentives
- Various federal and state tax incentives make higher domestic costs more bearable. Key incentives include:
- Section 45X Advanced Manufacturing Production Credit: Encourages production of energy components like solar and wind energy parts, inverters, and battery components. The credit can be applied against federal income taxes, obtained as a direct payment, or transferred to another taxpayer.
- Section 48D Advanced Manufacturing Investment Credit: Provides a 25% credit for investments in semiconductor manufacturing facilities or equipment.
Additional Reasons for Reshoring
Supply Chain Stability
- Recent global events, such as the COVID pandemic and natural disasters, have highlighted vulnerabilities in international supply chains. Domestic supply chains offer more stability and agility.
Geopolitical Concerns
- Trade wars, civil unrest, and tensions with China contribute to the uncertainty of international operations, making domestic manufacturing more appealing.
Considerations for Reshoring
Location Selection
- Extensive research is required to select the right location for reshoring. Factors to consider include:
- Real estate prices
- Environmental issues
- Proximity to transportation networks
- Applicable regulations and zoning laws
- Availability of raw materials and finished goods
Skilled Labor Availability
- The U.S. faces a significant shortage of skilled labor, with millions of manufacturing jobs potentially going unfilled. Manufacturers must evaluate the availability and cost of labor in potential locations.
Equipment Decisions
- Manufacturers must decide whether to ship offshore equipment back to the U.S. or replace it domestically, considering maintenance and repair resources.
Conclusion
Reshoring can be beneficial for many manufacturers, but it requires careful assessment of various factors. Manufacturers must consider the importance of thorough research and planning to make the best decision for a company's bottom line. Reach out to your tax professional if you have questions about the process of reshoring.
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A member of the Firm’s audit and assurance department, John’s responsibilities include managing fieldwork, guiding staffing, coordinating efforts with management, risk analysis, and detail review of our procedures for audits, reviews, compilations, and examinations. John has several years of experience working with commercial businesses, including those in manufacturing, start-ups, and general service industries, along with school districts and governmental entities. Additionally, he has experience working on SEC engagements, including non-carrying broker-dealers. John is also a member of the Firm's Auditing Technical Committee.