What has long been a desire of President Trump may be close to becoming a reality, as a large number of American companies may make the decision to cease operations in Chinese facilities and shift manufacturing and sourcing to be done primarily within the States, according to a report by global manufacturing consulting firm Kearney released Tuesday.
The report begins by comparing this year’s findings with that of last years, what is similar and what has changed, and states:
“2020 dawned with a disruption of a new order of magnitude - COVID-19. At this writing, the full extent of the societal and economic trauma the coronavirus pandemic may cause is unknown. But it will be historic. As a result, we forecast that companies will be compelled to go much further in rethinking their sourcing strategies - indeed, their whole supply chains.”
The introduction of the report goes on to offer views on how this large-scale corporate rethinking may happen, in broad terms.
“Specifically, we expect companies will be increasingly inclined to spread their risks, as opposed to putting all their eggs in the lowest cost basket. Fundamentally, we anticipate the threat of future crises will compel companies to restructure their global supply chains with an eye toward increased resilience, as well as lower risks and costs, as resilience is the key to operating profitably in the face of ongoing disruptions.”
Getting into the main body of findings, it is noted that U.S. manufacturing imports from other Asian low cost countries (LCCs) besides China increased by $31 billion in 2019, with almost half of that number being absorbed by Vietnam.
It was also indicated by the report that a “dramatic reversal” of a 5-year trend had taken place in 2019, with U.S. production holding a significant majority over 14 other Asian LCCs.
Concluding, the report warns of the lessons that must be learned from the coronavirus pandemic, and reiterates statements made in its introduction.
“The lessons we must learn from COVID-19 are as momentous as they are harsh. While the trade war triggered some notable tinkering, the massive operational disruption wrought by the coronavirus pandemic will compel companies to fundamentally rethink their sourcing strategies. At minimum, we expect they will be increasingly inclined to spread their risks rather than put all their eggs in the lowest cost basket, as many long did in China.”
According to Patrick Van den Bossche, a Kearney partner and co-author of the report,
“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 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.”
There has also been similar thought on Capitol Hill, with Sen. Marsha Blackburn (R-Tenn.) having introduced legislation to end dependence on Chinese pharmaceutical manufacturing back in March.