Reshoring, Automation, and Labor Markets Under Trade Uncertainty

2024-16 | May 8, 2024

We study the implications of trade uncertainty for reshoring, automation, and U.S. labor markets. Rising trade uncertainty creates incentive for firms to reduce exposures to foreign suppliers by moving production and distribution processes to domestic producers. However, we argue that reshoring does not necessarily bring jobs back to the home country or boost domestic wages, especially when firms have access to labor-substituting technologies such as automation. Automation improves labor productivity and facilitates reshoring, but it can also displace jobs. Furthermore, automation poses a threat that weakens the bargaining power of low-skilled workers in wage negotiations, depressing their wages and raising the skill premium and wage inequality. The model predictions are in line with industry-level empirical evidence.

About the Authors
Sylvain Leduc is executive vice president and director of Economic Research at the Federal Reserve Bank of San Francisco. Learn more about Sylvain Leduc
Zheng Liu is a vice president and director of the Center for Pacific Basin Studies in the Economic Research Department of the Federal Reserve Bank of San Francisco. Learn more about Zheng Liu
Hamid Firooz, University of Rochester