U.S. companies began moving manufacturing to other countries in significant numbers starting in the 1960s and 1970s, but the trend accelerated rapidly in the 1980s and 1990s due to globalization, trade liberalization, and advancements in communication and transportation.
This post recaps the history of the offshoring phenomenon—its historical origins, drivers, benefits, consequences, and evolving trends from economic, social, political, and business perspectives.
First, a few definitions
- Globalization is the process of increasing interaction and integration among people, companies, and governments worldwide. It involves the flow of goods, services, capital, technology, information, and culture across international borders.
- Trade liberalization refers to the removal or reduction of barriers to international trade, such as tariffs, import quotas, and subsidies. The goal is to make it easier and cheaper for countries to exchange goods and services.
How many US companies are manufacturing their products in another country?
Based on available data, approximately 35% of U.S. companies reported that more than half of their manufacturing occurs outside the United States as of 2020 .Statista
Additionally, a 2023 survey by the Boston Consulting Group found that over 90% of North American manufacturing companies had relocated at least some of their production or supply chain operations in the past five years, with half shifting more than 20% of their manufacturing and supply chain spending .PR Newswire+1BCG Global+1
This doesn’t look like a large amount because it includes both industrial and consumer goods. When we narrow our focus and only look at consumer goods, the impact of offshoring is much greater:
How much of the consumer goods we buy are made outside of the US?
Sources: Census.gov, Economic Research Service, Vox
When we look at where the manufacturing is happening, China is the clear winner with 22.3% of all imports.
These top 15 countries collectively accounted for approximately 79.2% of all U.S. goods imports in 2022.Census.gov+2Census.gov+2Census.gov+2
What consumer goods are we importing?
Note: Percentages are based on data from 2022 to 2024. S&P Global
Below is a timeline that shows how offshoring began:
1960s–1970s: Beginnings
- U.S. firms began exploring offshore production mainly for labor-intensive industries (e.g., textiles, footwear, and basic electronics).
- Mexico (via maquiladoras) and East Asia (like Taiwan and South Korea) became early hubs due to cheap labor and favorable trade policies.
1980s–1990s: Acceleration
- The rise of neoliberal economic policies, including deregulation, privatization, and free trade agreements (like NAFTA in 1994), led to a dramatic increase in offshoring.
- China’s opening to foreign investment post-1978 and its 2001 entry into the WTO made it a global manufacturing powerhouse.
2000s–2010s: Peak Globalization
- Offshoring expanded to include high-tech electronics, automotive components, and more sophisticated goods.
- Supply chains became globalized; many companies moved from in-house manufacturing to contract manufacturing and outsourcing.
It was approximately 184 years between the founding of the United States in 1776 and when businesses thought it was a good idea to manufacture their products in another country. The BIG question is WHY?
- Lower Labor Costs: Manufacturing wages in countries like China, Vietnam, or Mexico were fractions of U.S. wages. In 1960, a person working in manufacturing earned $2.26/hour vs $0.10 to 0.20 cents/hour for someone working in a Chinese factory.
- Access to New Markets: Setting up operations abroad helped companies establish a presence in emerging markets.
- Tax Advantages: Some countries offered tax incentives for foreign companies to set up factories in their country to provide jobs.
Benefits to US Businesses making products in other countries
- Improved profit margins – $
- Greater shareholder value – $$
- Increased competitiveness through lower prices – $$$
- Without the overhead of running a factory, U.S. firms could focus on design, innovation, and services
Benefits to Consumers
Lower prices for U.S. consumers (especially electronics, apparel, and household goods)
We all know these companies did not lower their prices when their manufacturing cost decreased. This would reduce their profit margin so this the above statement is a bit misleading. Do any of us recall a time when the price of something went down? I’ll wait…….#crickets
We can say that the price of an item manufactured in China or Mexico today is less than it would be if it were made in America because of the difference in labor costs.
Negative Impacts – Social & Economic
- Loss of millions of manufacturing jobs and economic decline in communities dependent on manufacturing, especially in the Rust Belt*
- Loss of manufacturing know-how, equipment, and skilled labor
- Erosion of domestic supply chains – the suppliers and servicers that supported manufacturing businesses also went out of business
- Wage stagnation for blue-collar manufacturing workers. Rise in income inequality and economic resentment, fueling political polarization
- Working-class displacement, increased unemployment in affected regions
- Loss of union power and collective bargaining
*The Rust Belt refers to a region in the northeastern and midwestern United States that was once the heart of American industrial manufacturing, particularly from the late 1800s through the mid-20th century. It got this name because of the decline in manufacturing businesses.
Benefits to nations that began manufacturing goods for US companies
- Job creation and industrialization (especially in Asia)
- Often accompanied by labor exploitation, poor working conditions, and environmental harm
- Shift from agrarian to industrial economies in places like China, Bangladesh, and Vietnam
If enough people are interested in this topic, I may do a part 2 to talk specifically about China. Let me know!
This info is gold, and it brings reality to what is going on in America.