What’s driving the U-turn in capital investment project trajectories from offshore locations back to U.S. sites – and to the Midwest in large measure? This was the question at the heart of the first general session held at Conway’s TrustBelt conference in Detroit in early November 2018. Ron Starner, executive vice president at Conway moderated the session. Panelists were geopolitical strategist, author and speaker Peter Zeihan; consultant John Longshore with Global Location Strategies; Courtney Dunbar, industrial program leader at Olsson Associates; and Tre Sasser, CFO at Rural Sourcing Inc.
Low-cost energy is a main driver of the reshoring phenomenon, noted Peter Zeihan. A net exporter of energy, particularly natural gas, “the U.S. now has cheapest electricity in the world and the cheapest petrochemicals in the world,” he said. “A lot of heavy industry is moving back specifically to take advantage of that. Every time you get a new petro-plant, suddenly everything that’s in mid-manufacturing has the cheapest inputs in the world. That moves to automotive and semiconductors very quickly, because all of a sudden, it’s making sense to put various multi-step, supply chain manufacturing systems in the same political entity or at least within the same trade network. Heavy industry. Medium industry. Light industry. Manufacturing, agriculture, finance – it’s all coming back. It’s looking for all the things it would normally look for – low labor costs, reasonable education levels and a mix of greenfield and brownfield land, and the power is cheap. It’s hard to beat the Midwest.”
Tre Sasser’s company is bringing software development back to the U.S. as labor costs overseas rise and such barriers as languages and time zones take their toll. Rural Sourcing recently opened a development center – Rural Sourcing’s fifth – in Oklahoma City and in late 2018 was scouting the Midwest for a location for its sixth. Why the TrustBelt? “It’s about access to talent, a low cost of living, and availability of economic incentives,” Sasser explained.
New Roles for Agriculture – and the TrustBelt
The tax cuts passed in 2017 may not be a driver of reshoring to America, but they make the case for doing so an easier sell, noted John Longshore. In late 2018 (the TrustBelt conference took place the same day the U.S. midterm elections were held), his clients were more preoccupied with project timing, given uncertainty at the time over election ramifications and trade negotiations with key partners worldwide. “Clients are holding off to let things shake out,” he related. “We have one client who refuses to be used as any sort of political leverage and will wait to see how things go before deciding how and where to proceed.”
With the specter of trade tariffs in the offing, part of Session 1 dealt with agriculture, a key industry for every state in the TrustBelt and one that is “absolutely part of the primary economy of this country,” noted Courtney Dunbar. “Agriculture is not just about the raw product,” she related. “Michigan has one of the largest volumes of agricultural commodity production variety in the country. The majority of that is going over the borders and elsewhere in the country in raw product to be value-added elsewhere. That means you miss a very important multiplier because of laws and regulations that existed in places like Canada that bar you from being able to mass produce or to produce value-added in Michigan. The ability to see some change will open this opportunity to create another industrial base, which is extremely important for states like Michigan.”
To that point, Zeihan said that after the trade turbulence abates, “the U.S. is looking at an agricultural boom that we have not seen since the early 1800s – the pioneer era, and the era of the Napoleonic wars. The U.S. sold food into a starving world at prices we haven’t seen since. That’s our future. Farming will be the second-fastest-growing sector in the American economy for the next 60 years.” Most of the TrustBelt states are farm belt states as well – the region’s future is bright indeed.