New Data Shows U.S. Companies Are Definitely Leaving China

U.S. companies are leaving China thanks to the trade war. They’ll leave even more thanks to the pandemic. Sorry, Davos Man. Your China-led globalization is going out of style like bell bottoms. 

Global manufacturing consulting firm Kearney released its seventh annual Reshoring Index on Tuesday, showing what it called a “dramatic reversal” of a five-year trend as domestic U.S. manufacturing in 2019 commanded a significantly greater share versus 14 Asian exporters tracked in the study. Manufacturing imports from China were the hardest hit.

Last year saw companies actively rethinking their supply chain, either convincing their Chinese partners to relocate to southeast Asia to avoid tariffs, or by opting out of sourcing from China altogether.

"Three decades ago, U.S. producers began manufacturing and sourcing in China for one reason: costs. The trade war brought a second dimension more fully into the equation―risk―as tariffs and the threat of disrupted China imports prompted companies to weigh surety of supply more fully alongside costs. COVID-19 brings a third dimension more fully into the mix­, and arguably to the fore: resilience―the ability to foresee and adapt to unforeseen systemic shocks," says Patrick Van den Bossche, Kearney partner and co-author of the 19-page report.

The main beneficiaries of this are the smaller southeast Asian nations, led by Vietnam. And thanks to the passing of the U.S. Mexico Canada Agreement, Mexico, for all its problems with drug cartels, has become a favorite spot for sourcing.
 

In 2020, the trade war seemed to be on pause. Sadly, it gave way to a global pandemic that emanated from the Hubei province in China. The new SARS coronavirus has literally closed the economies of the Western world and created a public relations nightmare for China.

Not only that, companies were unable to get supply online in February and early March due to factory closures there, stalling business in the U.S.

Once China got up and running, the U.S. was hit between the eyes with the deadly COVID-19 disease caused by the rapidly spreading new SARS. Even if China was fully healed, the U.S was stuck in sick bay.

The full extent of the societal and economic trauma the coronavirus pandemic may cause is unknown still, the Kearney report’s authors wrote. But whatever the outcome, a return to status quo China trade pre-pandemic is unlikely. 

Kearney predicts companies “will be compelled to go much further in rethinking their sourcing strategies, (and) their entire supply chains.”

Specifically, the Kearney report’s authors wrote that they expect companies will be increasingly inclined to spread their risks, as opposed to relying solely on China as this pandemic has exposed them.

China is the go-to source for ibuprofen, hazmat suits, rubber gloves, surgical masks, ventilators. Probably toilet paper, for all we know. How this is not a national security issue is something being raised by senators including Josh Hawley (R-MO) and Tom Cotton (R-AR)

 
The threat going forward of political anger toward China, not to mention future pandemics stemming from China (the first SARS came from there in 2002-03), means that companies will want to hedge their supply chain strategy by spreading their risks.

That doesn’t mean a full abandonment of China. It does mean China’s days as the go-to manufacturing hub for the Western world are over. 

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Forbes