The Coronavirus is really speeding things up in what we’ve wanted the government to do this whole time. Return mass manufacturing back to the United States.
Global manufacturing consulting firm Kearney released a report that shows American manufacturing companies are leaving China en mass, originating first by the trade war and then solidified by China’s inability to contain COVID-19 after unleashing it to the global community and refraining the medical supplies being shipped to the U.S.
A Kearney partner reports that three decades ago, U.S. producers began manufacturing and sourcing in China for one reason: costs. The trade war brought on a second dimension by tariffs and the threat of disrupted China imports. Last year companies started actively rethinking their supply chain, either convincing their Chinese partners to relocate to southeast Asia to avoid those tariffs or by opting out of sourcing from China altogether. COVID-19 just brought on a third dimension of resilience when China foresaw and adapted to unforeseen systematic shocks before telling anyone else. China is the go-to source for ibuprofen, hazmat suits, rubber gloves, surgical masks, ventilators, the list goes on. How this is not a national security risk is something being seriously raised by senators including Josh Hawley (R-MO) and Tom Cotton (R-AK). This closed the economies of the Western world and created a public relations nightmare for China.
The report also indicates a “dramatic reversal” of a five-year trend in 2019, showing U.S exporting its manufacturing. Last year, U.S production commanded a significantly greater share versus the 14 Asian low-cost countries. Hardest hit was and continues to be China. In addition to returning production to the states, companies are also moving manufacturing sites to southeast Asian countries and Mexico. 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, has become a favorite spot for sourcing.
While the Trade war triggered some alterations in how we produce and export, Coronavirus compelled most companies to fundamentally rethink their sourcing strategies. They will want to hedge their supply chain strategy by spreading their risks. This doesn’t necessarily mean a full abandonment of China. It does mean China’s days as the go-to manufacturing hub for the Western world are over.
Lawmakers are introducing initiatives to end American reliance on China in the wake of this pandemic. Republican Senator Marsha Blackburn, for example, has introduced legislation that would end American dependence on Chinese pharmaceutical manufacturing. And while the U.S cannot compete with China labor costs, they can compete on corporate taxes, an abundant and qualified blue collar labor force, and by implementing environmental regulations that don’t force companies to overspend on technologies and consultants that just end up eating into their bottom line.
Sorry Liberals who want a China-led globalization. You really shouldn’t be fighting this. We can no longer put all of our eggs in one low-cost basket. It’s time for U.S companies to start rethinking and reshaping their supply networks.