When Western manufacturers began moving production to low-wage countries in the late twentieth century, the logic was straightforward: labor abroad cost a fraction of labor at home, and that gap dwarfed the added expense of shipping finished goods back across the world. For two decades the arithmetic held, and offshoring became the default strategy of cost-conscious firms.

More recently, a growing number of those same firms have begun bringing production home—a movement labeled reshoring. The temptation is to read reshoring as a repudiation of the original offshoring logic, as though the earlier calculation had been mistaken. But this misreads the situation. The offshoring calculation was sound for its time; what changed was the inputs to that calculation. Wages in the formerly low-cost countries rose sharply as those economies developed, narrowing the labor-cost gap that had justified the move. Shipping costs grew not only higher but more volatile, and a volatile cost is harder to plan around than a high but stable one. Firms also discovered that the total cost of offshore production included items their original spreadsheets had omitted: the expense of quality failures detected only after goods had crossed an ocean, the working capital tied up in long transit times, and the lost sales when distant factories could not respond quickly to shifts in demand.

The firms now reshoring are therefore not confessing that offshoring was always a blunder. They are responding to the same logic that once sent them abroad—a sober comparison of total costs—as that logic now points in the opposite direction. The constant is the decision rule; what reversed is the world the rule is applied to.