The recent tariffs announcement by the Trump administration in the United States has been hailed as a strategy to assist in reducing the more than US$1.2 trillion annual trade deficit of that country and to resuscitate the fledgling manufacturing sector.
Many pundits argue that industrialisation is a thing of the past and modern economic development should focus on the services sector.
A case can, however, be made for the adoption of a reindustrialisation strategy as a viable business model that focuses on greater automation and robotics. Reindustrialisation refers to a set of policies and actions that mobilise a nation’s resources to restore or enhance its industrial foundation.
In his seminal work on reindustrialisation in the age of fragmentation, Philip Pilkington argues that to assess the feasibility of reindustrialisation in today’s global economy, it is essential to consider wage rates, infrastructure, education and investment as crucial areas. Foreign Direct Investment (FDI) plays a significant role in industrialisation, as foreign companies bring both capital and expertise that domestic firms may lack. Additionally, countries with lower wage rates tend to attract more FDI. However, data from 2017-2022 show that FDI inflows to BRICS countries are surprisingly low compared to many Western nations. This challenges the belief that developing countries, especially those with rapid growth, attract substantial FDI.
Pilkington opined that to understand the potential for reindustrialisation, it is essential to examine the size of the manufacturing sector relative to the entire economy and the current account balance. Manufacturing in BRICS countries typically represents a higher percentage of GDP than in Western countries, with China being the standout leader, followed closely by South Korea. This suggests that manufacturing is not solely dependent on low wages, as South Korea, a wealthy country, has a robust manufacturing sector despite relatively high wages.
Examining the relationship between manufacturing and current account balances reveals that while a robust manufacturing sector does not predict a current account surplus, every country with a manufacturing sector above 20 per cent of GDP does run a surplus. This suggests that having a large manufacturing sector may be a sufficient but not necessary condition for a trade surplus.
Research done by Capgemini Research Institute revealed that in 2024, 59 per cent of executives in the US and Europe reported having a reindustrialisation strategy in place, and this figure is expected to rise to 66 per cent in 2025. Among companies pursuing reindustrialisation, 97 per cent are focusing on diversifying and investing in domestic manufacturing.
Nearshoring, where production is moved closer to home, is increasingly popular. In 2024, 42 per cent of executives had invested in nearshoring or a combination of reshoring and nearshoring, and this number is expected to rise to 56 per cent in 2025. This strategy helps reduce lead times, mitigate supply chain risks, and maintain control while supporting sustainability.
Key drivers of reindustrialisation include:
• Supply chain resilience
• Need to be closer to customers
• Geopolitical concerns
Supply chain resilience
In 2025, 95 per cent of executives highlighted supply chain pressure as a primary factor driving reindustrialisation, up from 69 per cent in 2024. Global disruptions, including shipping challenges in the Red Sea and Panama Canal, as well as strikes and wars, have significantly impacted supply chains.
Reducing supply chain costs is cited by 80 per cent of executives as a key factor in reindustrialisation. Sustainability concerns, such as the environmental impact of long supply chains, are also driving change. In 2025, 60 per cent of executives cite these concerns as reasons for reindustrialisation.
Furthermore, there is a growing trend towards vertical integration, where companies are reshoring part of their production processes to maintain better control.
Need to be closer to customers
The research showed that 92 per cent of executives in 2025 are driven by the need to be closer to their customers. Over the next three years, the share of onshore manufacturing is expected to rise from 41 per cent to 48 per cent while nearshore operations are expected to increase from 22 per cent to 24 per cent. Conversely, offshore manufacturing is expected to decline from 37 per cent to 28 per cent.
A key strategy for many companies is “friendshoring”, or sourcing and producing in allied countries. Seventy-three percent of executives believe that friendshoring will play a significant role in their sourcing and production strategies. The share of friendshoring in global manufacturing is expected to increase from 37 per cent to 41 per cent in the next three years, with US companies leading the trend.
Geopolitical concerns
Geopolitical tensions, particularly the Russia-Ukraine conflict and US-China tensions, have further strained global supply chains. In 2025, 90 per cent of executives, including 93 per cent of those in the aerospace and defence sectors, view geopolitical issues as key drivers of reindustrialisation.
Rising tariffs and geopolitical concerns are driving many organisations to accelerate their reindustrialisation plans. According to the research, 93 per cent of executives are concerned about the impact of a global trade war on operations and market access. Tariffs on imports are seen as a catalyst for reindustrialisation, with 54 per cent of executives, particularly in the US (59 per cent), believing these tariffs will speed up their plans.
Industries are responding differently to tariffs. For example, electronics manufacturers may face component shortages, while chemical companies might benefit from reshoring. Smaller manufacturers may struggle with transition costs, while larger firms could use tariffs as an opportunity to rebuild and diversify their supply chains.
The report reveals that nearly 60 per cent of executives are committed to continuing these initiatives despite higher costs, with 65 per cent of companies aiming to reduce their dependence on Chinese products. Instead, they are investing in “friendshoring” over the next three years to de-risk their operations.
Reindustrialisation efforts are expected to grow, with businesses preparing to invest $4.7 trillion in these strategies over the next three years, up from $3.4 trillion in 2024. The shift towards reindustrialisation is also seen as an opportunity to make supply chains more sustainable, with 73 per cent of executives believing this shift will promote eco-friendly practices. Half of those executives also view reindustrialisation as essential to meeting their climate goals.
Reindustrialisation offers clear benefits. A strong manufacturing sector fosters significant investment, which in turn supports economic growth. The link between manufacturing, productivity, and overall economic growth, once widely recognised, has been overlooked due to the rise of globalisation and the service sector-driven “new economy” narrative.
The Small Business Association of Barbados (www.sba. bb) is the non-profit representative body for micro, small and medium enterprises (MSMEs).
The post The possibility of reindustrialisation in 2025 appeared first on Barbados Today.
