Executive Summary
In the second report in a two-part series, we analyze which domestic industries could potentially benefit from increased production if industries re-orient their supply chains back toward domestic vendors. Our analysis shows that the industries that could potentially benefit the most include leather & apparel, electrical equipment, textiles, computers & electronics and plastics & rubber products.
What Do We Mean by “Supply Chains”?
In Part I of this series, we analyzed how different industries could be affected if they were to reorient their supply chains back toward the configurations that prevailed twenty years ago. We found that some industries, such as aircraft & aerospace, leather & apparel, machinery, auto & auto parts and electrical equipment, have relied increasingly on foreign vendors to supply their inputs since the late 1990s. Therefore, these industries would potentially face some of the largest adjustments if they were to re-orient their supply chains away from foreign vendors and back toward domestic suppliers. But we also noted in Part I that the domestic suppliers of these inputs could benefit via higher demand if supply chains were brought back onshore. So which domestic industries could potentially enjoy the biggest windfall from a re-orientation of supply chains?
Before answering that question, we should first clarify what we mean by “supply chains.” Demand for goods and services can arise from two sources: as inputs into the production of other goods and services and as final demand. For example, consider a firm that manufactures wiper blades for automobiles. Automakers purchase wiper blades to install on the automobiles that they sell to consumers. In this case, wiper blades are an input into the production of automobiles. But individuals can also purchase wiper blades to replace the old ones on cars they currently own. In this case, the wiper blades are purchased on a final basis.
Over the past twenty years, automakers may have shifted their purchases of wiper blades from domestic producers to foreign producers. Retailers that sell wiper blades directly to consumers may also have shifted their purchases from domestic vendors to foreign vendors. For the purposes of this report, we consider only the first channel. That is, we analyze “supply chains” in the narrow sense of the term: the use of goods and services only as inputs into the production of other goods and services. We do this to make the methodology in this report consistent with the analysis we undertook in Part I. We will postpone consideration of changes in final demand for goods and services to another time.
Also, it is also important to note that supply chain re-orientation will not just affect the dynamic between industries, but also within industries. Many companies import products from within their own industry in order to assemble or refine them for final sale. For instance, some auto parts are imported as inputs for other industries, but the majority remain within the auto industry, such as wiper blades in the example above.
