President Donald Trump’s trade war with China produced incentives for companies to return to the U.S., according to an annual reshoring report that was released Tuesday by global consulting firm Kearney.
But China’s mishandling of the coronavirus and its attempts to repress information about the virus’s spread may have accelerated that trend.
“Three decades ago, U.S. producers began manufacturing and sourcing in China for one reason: costs,” wrote Patrick Van den Bossche, a Kearney partner who co-authored the report..
“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,” he continued. “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.”
Indeed, the report revealed that there has been a “dramatic reversal” in U.S. companies’ outsourcing. Production within the U.S. actually “commanded a significantly greater sharer versus the 14 Asian low-cost countries,” including China, in 2019, the report states.
U.S. companies are also looking to southeast Asian countries, such as Vietnam, as well as Mexico, according to Kearney.
“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,” the report concludes.
“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.”