The Battle To Reshore US Supply Chains Starts In China

As prescribed in 26 U.S.C. § 41, the R&D credit may be claimed by taxpaying businesses that develop, design, or improve products, processes, formulas, or software. For manufacturers looking to leverage this resource for their reshoring efforts, the first step is for businesses to work closely with their advisors and CPAs to scrutinize daily activities and determine if the innovation they are pursuing qualifies them for available tax incentives like R&D.

This scrutiny includes:

• Documenting all potential R&D activities (project lists, notes, expense ledgers, etc.)
• Gathering employee testimony
• Keeping track of R&D wages, as well as contractor, supply and computer costs

As long as activity is clearly documented, a variety of business innovation within the manufacturing industry can qualify. Some examples include:

• Introducing new and/or improved efficiencies to a wide range of manufacturing operations – a qualification where reshoring efforts would likely fall
• Implementing and designing automation solutions
• Integrating new supply chain technology

Especially with innovation happening so rapidly, Congress needs to make sure businesses know that emerging technologies can form the basis of their R&D claim.

For example, as AI, machine learning, and automation become stronger forces across the globe, companies that are working to integrate these tools into their business operations and reshoring plans will likely qualify for R&D incentives. Not only will this support the companies themselves, but it will support America’s manufacturing productivity and competitiveness in the global marketplace.

Looking beyond incentives

Beyond providing existing tax incentives, the U.S. government should also help businesses reshore by eliminating workforce roadblocks. As technical labor is still in short supply here in the U.S., Congress should consider simplifying, expediting, or prioritizing immigration visas for employees of companies who are looking to bring in foreign labor. This simplified process should apply from the work visa stage through the worker obtaining citizenship status as an American, assuming the employee maintains their work status.

This method has been introduced within in the agriculture industry with the Farm Workforce Modernization Act which would provide undocumented farmworkers with a path to legal immigration status and citizenship. This solution, meant to combat a severe labor shortage, can and should be considered in the manufacturing space as well.

Doing so will create a win-win scenario – an increased labor force in the U.S. while pulling operations away from competitors abroad.

As of May, a poll found that 82% of U.S. business leaders are either already reshoring or planning to reshore their overseas operations. This is a dramatic increase, and trend in the right direction, from the 55% that was reported in January.

In the near term, the U.S. government should work to not just offer bolstered incentives for reshoring operations, but highlight the risks of offshoring like the costs of shipping and import duties, as well as what some have called the “hidden cost” of businesses over-ordering product overseas to protect against inventory pitfalls and longer lead times. We’ve seen this before with prominent U.S. companies like Deere & Company, which last year invested $29.8 million to begin manufacturing harvesters in America instead of China.

In most cases, the benefits of reshoring can outweigh the costs. Congress must act to strengthen all resources that will spur all American businesses to come back home, and businesses in the manufacturing sector need to take advantage of key economic incentives they have likely overlooked thus far.