Coronavirus speeds up American suppliers’ exodus from China
The COVID-19 pandemic is giving fresh energy to corporate plans to move supply chains out of China, according to a new survey.
Seventy-six percent of finance chiefs whose companies have manufacturing in China indicated in a survey by Swiss lender UBS that the pandemic has reinforced their company’s goal of moving at least some of that production elsewhere. Thirty-four percent of the more than 450 executives surveyed represent companies with manufacturing in China.
U.S.-based firms weren’t the only ones looking to move: 85 percent of North Asian firms and 60 percent of Chinese manufacturers also said they were planning to move at least some production from the mainland, where COVID-19 was first identified late last year.
Together, the three surveys found up to 30 percent, or $750 billion, of China’s $2.5 trillion of exports might be relocated.
“There could be a sizable rebalance as China’s share of world exports has jumped 10 percentage points since the early 2000s to about 14 percent, much higher than the U.S., Germany and Japan, wrote UBS’ global macro strategy team, led by Keith Parker.
The COVID-19 pandemic, which originated in Wuhan, China, and has infected more than 8 million people worldwide, ravaged supply chains as companies were forced to temporarily shutter operations amid stay-at-home orders aimed at slowing the virus’ spread.
The outbreak has led to increased scrutiny of America’s reliance on China for not only key medical supplies but production capacity in general. China is the world’s largest producer of personal protective equipment, including masks and test kits, and also manufactures electronics, apparel, electrical equipment and many other products.
Of the firms surveyed, 92 percent of healthcare companies and 89 percent of consumer staple firms have already moved capacity out of China or are planning to do so. Technology (80 percent) and consumer discretionary (76 percent) producers were also more likely to leave than industrials (69 percent) and materials (57 percent) manufacturers.
Meanwhile, eighty-two percent of U.S. firms surveyed said they were looking to bring production home while also considering Canada (38 percent), Japan (29 percent) and Mexico (23 percent).
Japan, which was the most preferred destination for North Asian and Chinese companies, would be the biggest beneficiary from a supply-chain exodus, followed by Vietnam and the U.S., according to UBS.
The push to bring supply chains home, long a priority for President Trump, has gained momentum in Washington amid escalating tensions between Washington and Beijing.
White House economic advisor Larry Kudlow told FOX Business’ Stuart Varney last month that the Trump administration would be willing to foot the bill for companies that bring their supply chains back to America.
“We welcome any American companies in Hong Kong or China mainland. We will do what we can for full expensing and pay the cost of moving if they return their supply chains and their production to the United States,” he said.
The 2017 Tax Cuts and Jobs Act, backed by the Trump administration, provided another incentive, allowing U.S. companies to bring assets home after paying a one-time levy of just 15.5 percent on cash and 8 percent on everything else.
The pandemic “revealed to everybody the limits to our digital superiority and our software and all the things that we’ve innovated in technology, Sen. Marco Rubio, R-Fla., told FOX Business’ Maria Bartiromo in April.
“You still have to be able to make things, he added. “You still have to have industry and industrial capacity as a country. And we’ve given a lot of it away.