[ April 19, 2024 ]
Silver lining. We have got to get our of China.
New Data Shows U.S. Companies Are Definitely Leaving China
By: Kenneth Rapoza, Forbes, April 9, 2020:
U.S. companies are leaving China thanks to the trade war. They’ll leave even more thanks to the pandemic.
Story continues below advertisementSorry, Davos Man. Your China-led globalization is going out of style like bell bottoms.
Global manufacturing consulting firm Kearney released its seventh annual Reshoring Index on Tuesday, showing what it called a “dramatic reversal” of a five-year trend as domestic U.S. manufacturing in 2019 commanded a significantly greater share versus 14 Asian exporters tracked in the study. Manufacturing imports from China were the hardest hit.
Last year saw companies actively rethinking their supply chain, either convincing their Chinese partners to relocate to southeast Asia to avoid tariffs, or by opting out of sourcing from China altogether.
Today In: Markets“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,” says Patrick Van den Bossche, Kearney partner and co-author of the 19-page report.
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, for all its problems with drug cartels, has become a favorite spot for sourcing.
In 2020, the trade war seemed to be on pause. Sadly, it gave way to a global pandemic that emanated from the Hubei province in China. The new SARS coronavirus has literally closed the economies of the Western world and created a public relations nightmare for China.
Not only that, companies were unable to get supply online in February and early March due to factory closures there, stalling business in the U.S.
Once China got up and running, the U.S. was hit between the eyes with the deadly COVID-19 disease caused by the rapidly spreading new SARS. Even if China was fully healed, the U.S was stuck in sick bay.
The full extent of the societal and economic trauma the coronavirus pandemic may cause is unknown still, the Kearney report’s authors wrote. But whatever the outcome, a return to status quo China trade pre-pandemic is unlikely.
Kearney predicts companies “will be compelled to go much further in rethinking their sourcing strategies, (and) their entire supply chains.”
(That sounds about right…)
Specifically, the Kearney report’s authors wrote that they expect companies will be increasingly inclined to spread their risks, as opposed to relying solely on China as this pandemic has exposed them.
China is the go-to source for ibuprofen, hazmat suits, rubber gloves, surgical masks, ventilators. Probably toilet paper, for all we know. How this is not a national security issue is something being raised by senators including Josh Hawley (R-MO) and Tom Cotton (R-AK).
The threat going forward of political anger toward China, not to mention future pandemics stemming from China (the first SARS came from there in 2002-03), means that companies will want to hedge their supply chain strategy by spreading their risks.
That doesn’t mean a full abandonment of China. It does mean China’s days as the go-to manufacturing hub for the Western world are over.
The Index Explained
The Reshoring Index compares U.S. manufacturing gross output to import data from 14 Asian low-cost countries.
To gauge the U.S. Reshoring Index, Kearney first looks at the import of manufactured goods from China, Taiwan, Malaysia, India, Vietnam, Thailand, Indonesia, Singapore, Philippines, Bangladesh, Pakistan, Hong Kong, Sri Lanka, and Cambodia; and secondly looks at U.S. domestic gross output of manufactured goods.
They then calculate the manufacturing import ratio (MIR) — the result of dividing the first number by the second. The U.S. Reshoring Index is the year-over-year change in the MIR, expressed in basis points (1 percent change = 100 basis points).
The numerator of the MIR is the sum of the value of all manufactured imports from those 14 Asian countries— which decreased from $816 billion in 2018 to $757 billion in 2019, a contraction of 7% at a time of solid American economic growth.
According to Kearney, the contraction is almost exclusively driven by the decline in imports from China, which fell the most at 17% due to tariff costs.
The only way for the U.S. to make itself attractive to corporate investment is to get its costs on par with China. While it cannot compete with China on labor costs, the U.S. 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.
President Trump likes to say that his tariffs are being paid for by the Chinese. It is U.S. importers, of course, that pay the duties at the ports. But the Chinese partners of the U.S. company suffers because the U.S. importer is now paying more for Made in China. That reduces the cost benefit of using China as an export hub.
The resulting 98-basis-point jump in the Kearney Reshoring Index is by far the biggest annualized change in favor of U.S. companies in five years.
Vietnam Wins Asia. Mexico Winning Americas.
The Kearney China Diversification Index (CDI) tracks the shift in U.S. manufacturing imports away from China and to other Asian countries on the list.
China is still the leader, but she is increasingly losing share in the Trump years.
In 2013, the base year for the CDI, China held 67% of all U.S.-bound Asian-sourced manufactured goods. By the second quarter 2019, its share collapsed 56%, a decrease of more than 1,000 basis points.
Of the $31 billion in U.S. imports that shifted away from China, some 46% was absorbed by Vietnam, sometimes by the same Chinese suppliers who left the mainland. Vietnam exported an additional $14 billion worth of manufactured goods to the U.S. in 2019 versus 2018 as a result of that shift.
Mexico is the China of the Americas.
Kearney introduced its Near-to-Far Trade Ratio (NTFR) this year. It tracks the movement of U.S. imports toward nearshore production in Mexico. The NTFR is calculated as a ratio of the annual total dollar value of Mexican manufactured goods to the U.S., divided by the dollar value of manufactured imports from the Asian 14, including China.
Since 2013, the NTFR has hovered steadily between 36% and 38% —meaning for every dollar of U.S. manufacturing goods from Asia, there were approximately 37 cents worth of manufacturing imports coming from Mexico.
That changed with the USMCA.
Mexico has gone from 38% to 42%. On a dollar-value basis, total manufacturing imports from Mexico to the U.S. increased 10% between 2017 and 2018, from $278 billion to $307 billion, and by another 4% between 2018 and 2019, to a total import value of $320 billion, based on the Kearney report.
“The door for these insurgents was clearly opened by ongoing U.S.–China trade disputes, as their gains were mainly in product categories impacted by tariffs,” says Yuri Castano, Kearney manager and co-author of the study. “Apparently, the trade war jolted U.S. companies to start rethinking and reshaping their supply networks.”
(Full report:)
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31 Comments
4 years ago
What is going to happen is that when all the American companies in Asia and Europe pull out and return to America, THEY (foreign immigrants) will try to come here and once again, we will end up dealing with MORE illegals.
4 years ago
Reply to
SoftwareBabeOHIO
you control immigrants who come legally . so your claim is exaggerated.
Can all companies come back ? Nah !
How many Americans do you know who can work with $2/hr in manufacturing job that chinese
and asians do ?
4 years ago
Reply to
Suresh
The smartest economist we have ever known never once said Americans should lower their costs of living to compete with 3rd world nations.
That is what tariffs are for.
4 years ago
Reply to
TARDRE
It will increase cost of everything ! And then ppl will demand more wage hikes ! That’s how cost spiral out .
And what makes you think other countries cannot place tariff on American goods ? Its a different matter china has been using high tariff to block american goods they don’t want.
while sending goods to USA with no tariff ! so increase tariff against china is good move. Its fair trade.
4 years ago
Reply to
Suresh
Tell me a time in our history where we did not have tariffs? We have tariffs right now. You get that right?
That is what they are there for and the free market will do the rest.
Meanwhile do US companies have the ability to operate like China companies? No?
So how is it a true free market?
4 years ago
Reply to
TARDRE
china has been fooling everyone. Not Just America. Inspite of low cost advantage they have high tariffs !
4 years ago
Reply to
SoftwareBabeOHIO
OHIO – do you still wear your pink vag!na hat while you scream at the sky ?
4 years ago
The sooner, the better! China is and has been fighting the U.S. for dominance for decades. Trump is fighting to change this. Globalists, Main Street and the corrupt establishment are fighting Trump on this.
4 years ago
Reply to
felix1999
Remember the old days (early 90’s) when Walmart had the slogan “Bring It Home To The USA” and “Made In America” one the wall when you walked in. They should proudly display CCP on the door when you walk in now.
4 years ago
Reply to
Mad Conservative
We can produce anything China can and due it better, STOP BUYING CHINA MADE PRODUCTS!
4 years ago
Reply to
Reddogpew
If you actually examine what is on the shelf, you’ll find higher quality Made-in-USA for pennies more than made-in-CHINA Case in point… Lieman, family business, 3M – made in CHINA…
4 years ago
Reply to
Mathew M
Hey Millennials – you claim to care about “Climate Change” – Right? Every time you as a consumer purchase a product “Made in China” or Vietnam, you are supporting their Communist Government’s decision to move from a self sustaining food system that is mostly carbon neutral to urban factory workers (very high carbon footprint) who then have to buy food grown on commercial farms using millions of gallons of diesel fuel… plus, much of it has to be imported from USA (more heavy crude oil being burned in marine diesels)
4 years ago
Such a shame China had to lie to everybody…
Not to mention, I love Chinese food, and a lot of Chinese guys are hot!
4 years ago
Reply to
White Brahma
BTW, why do you care what a person’s sexual orientation is? Just curious.
4 years ago
Embrace the suck, China! ????????????????
????????????
4 years ago
Stop doing business with Communist and Muslim countries! Period!
4 years ago
Glory of God!
4 years ago
Reply to
Roma Mikhasev
All praises to Xoggoth, Master of All. Everyone kneel now lest you be struck dead or at the least lose your WiFi for the next month.
4 years ago
Yes! Punch the one world globalist totalitarians in the face. I’m certainly not just referring to China. If there is any positive outcome from the pandemic crisis, this is it.
4 years ago
Whut drove American Made to China? Overly paid union workers who couldn’t be fired, who got paid twice what regular non-union workers got, who didn’t get five weeks of vacation, 6 months family leave, employer paid health insurance – NONE OF WHICH the rest of the world gets for working. China also gets prisoners to work in sweat shops on state run campi’s, more than 40 hours/no overtime/no OSHA requirements and a bullet if you don’t make production quotas.
I’m all for bringing back Made in America – but not to funding unions, who pay for candidates to get into office by stealing worker’s wages, to hand them more of the nation’s pie. We now have to compete with the world who doesn’t have unions, but still manage to survive
4 years ago
Reply to
Reddogpew
Errrr, Labor Unions are a Rust Belt thing, started by Mrs Henry Ford… Buy something made the the deep south and it will not be “Union Made”…
4 years ago
Reply to
PilotDave
In the south, we had textile mills making cloth of every description – then comes the ‘union man’ recruiting all the workers for higher wages – then the owners can no longer compete and close the shops because they went bankrupt – then the Chinese came and bought all the weaving machinery and shipped it off to factories in Asia – they started making clothing in sweat-shops, while our workers were on unemployment (after union checks ran out) and eventually welfare.
For proof, I axe you to look at the label sewn into any piece of clothing your now wearing & tell me what Asian Pacific nation it wuz made in.
America can not compete with world workers, happily making a quality product at below union wage jobs. Foreign nations also don’t have EPA/OSHA/minimum wage regulations which drive up the cost of manufacture.
4 years ago
The migration of US businesses out of China can’t happen soon enough! The concept of hiring ChinaDudes to manufacture our toys, sheet-rock, pet food, or anything else America can manufacture without the poisonous results, then it must be done! Same goes for the manufacture of medicine and whoever gave to go-ahead for that needs to be in a prison cell!
4 years ago
the commies in the USA want to force businesses to pay $15/hour to people with no skill. how could a business possibly relocate to the USA under those conditions. the money doesn’t add up unless folks are willing to pay$100 for a tee shirt and $2000 for a tv set.
4 years ago
Unions aren’t what they used to be and it’s a good thing. They’ve had a whole lot to do with driving manufacturing out of the USA. Unions are like the snake that ate itself, starting at the tail. Eventually they’ll disappear, as they should. They long ago served their purpose and degenerated into corruption.
4 years ago
None to soon –
