US Stocks Poised to Benefit from Reshoring Trend Amid Global Supply Chain Woes
Global Supply Chain Disruptions Fuel Reshoring Trend, Benefiting US Stocks
Recent years have seen a significant shift in global trade dynamics, with trade wars, the COVID-19 pandemic, and geopolitical tensions disrupting long-established supply chains. In response, efforts to reshore manufacturing to the United States are gaining momentum, potentially benefiting domestic small- and mid-cap stocks in sectors such as industrials and healthcare, according to Bank of America.
The golden era of globalization in the 2000s, characterized by increased interconnectedness across borders, has faced mounting challenges. The Trump administration’s 2018 tariffs on Chinese imports, which reached 21% by 2019, marked the beginning of a trade war that continues to impact global commerce. China’s retaliatory 21.8% tariff on US goods further strained international trade relations.
The COVID-19 pandemic exacerbated these tensions, causing widespread economic shutdowns and severe supply chain disruptions. China’s manufacturing halt, in particular, contributed to inflationary pressures in the US. More recently, rising geopolitical tensions in the Middle East have affected crucial shipping routes in the Red Sea, further complicating global trade.
In light of these challenges, protectionist policies are on the rise worldwide. A report by Société Générale highlights the reshoring trend as part of a changing world order, driven by the need to limit geopolitical risks, implement climate initiatives, and secure supply chains.
The reshoring initiative encompasses near-shoring (trading with closer countries) and friend-shoring (trading with allies). Despite these efforts, the US trade deficit widened by $5.8 billion in July, reaching its highest level since June 2022. The Biden administration has maintained Chinese tariffs and announced additional tariffs worth $18 billion on Chinese goods.
Economically, reshoring initiatives may create more manufacturing jobs and boost demand for domestic companies. Bank of America research suggests that domestic small- and mid-cap stocks are poised to benefit most from this trend. Construction spending to build manufacturing facilities has already increased by 19% as of June.
Bank of America has identified several buy-rated stocks expected to benefit from the reshoring trend. These include United Rentals (URI), Commercial Metals Company (CMC), Nucor Corporation (NUE), EastGroup Properties, Inc. (EGP), ON Semiconductor Corporation (ON), Nova Ltd. (NVMI), Camtek Ltd (CAMT), Jabil Inc. (JBL), and Flex Ltd. (FLEX).
As the reshoring trend continues to gain traction, investors and industry observers will be closely watching its impact on the US economy and stock market performance.
