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Report says American companies are leaving China en masse — and the coronavirus is speeding up that change


A 'dramatic reversal' of previous trends

Scott Olson/Getty Images

The coronavirus pandemic may get American companies to do something the government has wanted for decades: return manufacturing to the United States.

Global manufacturing consulting firm Kearney released a report Tuesday that shows American manufacturing companies are leaving China en masse, spurred first by the trade war and solidified by China's inability to contain COVID-19 after unleashing it on the global community.

Patrick Van den Bossche, a Kearney partner who co-authored the report, wrote:

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.

Indeed, the report indicated a "dramatic reversal" of a five-year trend in 2019 showing U.S. export its manufacturing.

Last year, U.S. production "2019 commanded a significantly greater share versus the 14 Asian low-cost countries," the report said. Hardest hit was and continues to be China.

In addition to returning production to the states, U.S. companies are also moving their manufacturing sites to southeast Asian countries and Mexico, the report said.

"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 said. "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."

Lawmakers are even introducing initiatives to end American reliance on China in the wake of the COVID-19 pandemic.

Sen. Marsha Blackburn (R-Tenn.), for example, has introduced legislation that would end American dependence on Chinese pharmaceutical manufacturing.

(H/T: Forbes)

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