The winners and losers from ‘Made in America’

This June, at his birthday celebrations in West Palm Beach, Donald Trump said he would build a ‘great iron dome’ for the US. This dome would be a state-of-the-art missile defence shield, and – most importantly – would be made in America by Americans. According to the aspiring president, this would mean ‘jobs, jobs, jobs’.

He also wants ‘tariffs, tariffs, tariffs’. He is proposing a 60% tariff on Chinese imported goods and up to 20% on goods from elsewhere. The aim is to bring manufacturing back to the US after decades of it drifting abroad, as companies have looked for cheaper labour. Critics argue these tariffs will be extremely inflationary, but Trump remains undeterred.

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The US Presidential Election remains too close to call, but major US companies have already recognised the direction of travel. An estimated 69% of US manufacturing companies have started to ‘reshore’ their supply chains back to America*. Even if Trump isn’t in the White House in November, companies see the risks inherent in lengthy supply chains and relying on unfriendly nations.

This is also the legacy of Covid and fractious geopolitics. During the pandemic, companies found that their supply chains were at the mercy of the lockdown rules for different countries. This was a particular problem for those manufacturing in China, where extended lockdowns significantly affected supply. Today, companies are seeing disruption as geopolitical tensions rise between countries. The Russia/Ukrainian war, for example, and the resulting sanctions have impacted the distribution of commodities across the globe.

Companies increasingly realise the importance of a secure supply chain, rather than simply gravitating to the cheapest possible manufacturer. One of the highest profile examples has been Apple’s main supplier, Foxconn, which has been moving its manufacturing away from China and into India amid rising tensions between the US and China**. Ernst & Young recently published research showing supply-chain disruption is a pressing concern for global businesses. In the UK, almost 90% of CEOs say they are making adjustments to their supply chain***.

Who wins from this new environment?

It is clear that many of the key beneficiaries are still in Asia, but just in different parts of Asia. Anthony Srom, manager of the Fidelity Asian Opportunities fund, says: “Intra-Asian trade – which for most economies in Asia already represents most of their exports and imports – has accelerated over the past few years. Proximity increasingly features as a factor to overcome any friction of travel and transport in supply chains.

“Countries like Vietnam, Malaysia, Indonesia and Thailand stand to benefit as global firms adjust their China exposure or pursue a so-called ‘China plus one’ strategy by relocating part of their supply chains to the ASEAN bloc. We also expect to see the rise of regional economic centres where growing demand from large economies, such as China or India, fuel growth in other developing countries nearby.”

Many of these countries are also benefiting from so-called ‘bamboo diplomacy’ – an ability to bend to each side of the geopolitical divide. Countries such as Vietnam and Mexico trade with both China and the West and are receiving investment from both sides. This makes them a natural home for risk-averse companies, who want to ensure business continuity.

However, India may ultimately emerge as the real winner. The Government has been putting incentives in place to encourage companies to set up there. In addition to companies like Foxconn, healthcare and biotechnology suppliers are also moving to India.

Hiren Dasani, a fund manager on the Goldman Sachs India Equity Portfolio, says: “Perhaps the biggest opportunity for India to spur economic growth in the next decade is to develop globally competitive manufacturing hubs as more companies make decisions about producing goods outside China and Russia. If India can capitalise, new manufacturing ecosystems may emerge with more employment and training for workers, along with opportunities for public and private capital to support infrastructure investments.

“The “Make in India” initiative—first unveiled a decade ago—aims to reduce India’s reliance on imported goods and increase exports of high-quality goods. India’s government has cut corporate taxes for new manufacturing production and launched Production Linked Incentive schemes across multiple sectors.”

Who else could benefit?

The other area to look at would be the US companies likely to benefit as manufacturing comes back onshore. While a Trump victory would accelerate this process, it is likely to happen whoever is in the White House. It is worth noting that in May 2024, the Biden administration announced additional tariffs on $18 billion of Chinese goods.

There are also environmental considerations. Shipping goods around the world is carbon-intensive, and as companies have to report on and address their carbon footprint, this may prompt more of them to source locally.

This means domestic companies should have a natural tailwind. This is the natural hunting ground of the Premier Miton US Opportunities fund, which specialises in smaller and mid-cap US companies. It holds companies such as Manhattan^, a warehouse management software group, which is plugged into the need for more efficient supply chains. Companies in this part of the market could be better value than AI stocks that have dominated index performance in the US.

A deglobalising world will create a new set of winners and may be an important catalyst to drive parts of Asia, and the domestic US economy. Investors need to be prepared and look at those parts of the world that could benefit as the environment shifts.

*Source: Medius, US manufacturers plan to increase reshoring to get better value and more security
**Source: PBS News, 3 December 2023
***Source: IMD, 25 April 2024
^Source: fund factsheet, 28 June 2024

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.