Reshoring infrastructure

Reshoring accelerates the economic and population growth across previously overlooked areas. Large tech companies simply will not commit billions of dollars to build a new plant, without certainty around energy supply, transportation networks, utility services, and high-speed internet. These tailwinds support infrastructure investments across all sectors.

Alex Leung, Head of Infrastructure Research & Strategy

Earlier this year, we highlighted “deglobalization” as an important megatrend that will support private infrastructure investments. However, some skeptics are pushing back on this argument, since trade volumes are growing in 2023 and is expected to further accelerate in 2024 according to World Trade Organization latest estimates in October 2023.

Volume of world merchandise trade, 4Q15- 4Q24e (USD billion)

Source: World Trade Organization, October 2023.

However, 2023 world trade volumes are expected to only grow by 0.8%, compared to the earlier estimates of 1.7% in April 2023, and original estimates of 3.4% forecasted in April 2022. The WTO also said that the share of intermediate goods in world trade is trending lower, suggesting further fragmentation of the supply chain.

Deglobalization used to carry a negative connotation within the business community, but this is no longer the case. Onshoring of manufacturing capacity and increased focus on energy security will require significant investments. Many of the new facilities are also located in previously overlooked rural areas, thus opening up new markets for infrastructure investors.

The macro data is beginning to reflect this trend. US construction spending for manufacturing reached a record high of over USD 100 billion in 2022, after being stagnant for six years. In the first nine months of 2023, manufacturing investments have already reached USD 140 billion, a 70% YoY increase and accounting for 18% of total construction.

US construction spending in manufacturing and share of total non-res spending (USD billion)

Source: US Census Bureau, October 2023.

Government policies have a big role to play here. The US Inflation Reduction Act (IRA) and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act have incentivized the build out of the domestic clean energy and semiconductor plants.

Many large corporates across the technology and industrial sectors have already announced multi-billion-dollar manufacturing facilities in the US in the last two years. The list below is by no means comprehensive, as the US government is tracking almost USD 500 billion of private sector manufacturing investments.

This is not just a US phenomenon. Europe is tracking over USD 200 billion of electric vehicle and battery manufacturing investments, and over USD 100 billion of semiconductor investments. Maros Sefcovic, who is leading the efforts behind the EU green deal, recently said that the EU will take on a more assertive approach in promoting “made in Europe” green industries , as a response to the pro-manufacturing policies set out by the US IRA.

One issue that is often associated with reshoring is the environmental impact, as the word “industrialization” may evoke the image of smoke, soot, and grime of the Victorian era. However, we believe that this will be a greener form of industrialization, as new manufacturing facilities will source cleaner energy, focus on efficiency and sustainability.

Most of the large corporations highlighted in above table that have also made net zero commitments. For example, Intel, which is looking to invest over USD 100 billion in chip-making plants, has pledged to achieve net zero in its operations by 2040. TSMC, another major chip maker, has committed to reaching net zero emissions by 2050.

Reshoring accelerates the economic and population growth across previously overlooked areas. Large tech companies simply will not commit billions of dollars to build a new plant, without certainty around energy supply, transportation networks, utility services, and high-speed internet. These tailwinds support infrastructure investments across all sectors.