Episode Details

Morgan Stanley Research analysts Michelle Weaver, Chris Snyder and Nik Lippmann discuss U.S.-Mexico trade and the future of reshoring and near-shoring under the Trump administration.

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Michelle Weaver: Welcome to Thoughts on the Market. I'm Michelle Weaver, U.S. Thematic and Equity Strategist at Morgan Stanley.

Christopher Snyder: I’m Chris Snyder, US Multi-Industry Analyst.

Nikolaj Lippmann: And I'm Nik Lippmann, Chief Latin America Equity Strategist.

Michelle Weaver: On this episode of our special mini-series covering Big Debates, we'll talk about the U.S.-Mexico trade relationship and the key issues around reshoring and nearshoring.

It's Friday, January 31st at 10am in New York.

The imposition of tariffs back in 2018 under the first Trump administration and the COVID pandemic put a severe strain on global supply chains and catalyzed reshoring and nearshoring in North America. But with inflation and supply chain concerns no longer front and center, investors are questioning whether the U.S. reshoring momentum can continue.

Chris, what's your view here?

Christopher Snyder: I think it's in the very early innings. You know, if you look at the history of U.S. manufacturing, the country really started ceding share in about 2000 when China joined the World Trade Organization. So, it's been going on for 25 years; we've been giving share back to the world. I think the process of taking share back is probably slower and ultimately is a multi-decade opportunity.

But you're absolutely right. The supply chain concerns are no longer like they were three to four years ago. But what I think has persevered since the pandemic is this heightened focus on operational durability and resiliency; and really shortening supply chains and getting closer to the end user, which I'm sure we'll hear more from Nick about, on the Mexico side.

But, you know, if you kind of look back at global supply chains and manufacturing, it's really been a chase to find low-cost labor for the last 45 years. And while that's always important, we think going forward, capital and proximity to end users will increasingly dictate that regional allocation of CapEx. I mean, those parameters are very supportive for the U. S.

You know, one thing I would like to kind of, you know, make sure is known on our U.S. reshoring view is that, you know, oftentimes it's thought of that we're shutting down a factory in China and reopening the same factory in the United States, and that's really a very rare example.

Our view is that the world, and very specific industries need to add capacity. And we just simply think that the U.S. is better positioned to get that incremental factory relative to any point in the last 45 years, due to the combination of structural tech diffusion, but also this focus on resiliency. And one thing that I really do think is underappreciated is that global manufacturing grows 4 to 5 per cent a year. In the U.S. it's been more in the 1 to 2 percent range because we're constantly ceding share. But even if the U.S. just stops giving back share, you could see the growth profile of U.S. industrials double.

Michelle Weaver: How would you size the reshoring opportunity? Do you have a dollar amount on what that could be worth?

Christopher Snyder: Yeah, we’ve sized it at $10 trillion. You know, and it's been a combination of the CapEx, the fixed asset investment that's needed to build these factories, then ultimately the production, you know, opportunity that will come to those factories thereafter.

Michelle Weaver: And you've argued that the U.S. reshoring flame was really lit in 2018 with the first wave of the Trump tariffs. It seems clear that trade policies by the new administration will continu