| China’s manufacturing glory wanes The chickens finally have come home to roost! With a trade war raging, offshore wages rising and recognition of costs increasing, offshoring no longer offers the go-to option for cost reduction. Instead, companies are realizing that optimizing supply chains via greater localization minimizes risk and reduces costs. The reports below highlight a series of factors that explain why companies are reducing offshore production, and, in particular, leaving China, the source of 59% of reshoring. One Trump Victory: Companies Rethink China. Companies are moving to reduce their dependence on Chinese factories to make the world’s goods. "There is not much of a difference between the costs in China and the United States," said Kim Fausing, CEO of Denmark's Danfoss Engineering. "You have to have a very good case today to justify producing something in China and shipping it to the U.S." Although the Trump administration has touted jobs as the primary incentive for reshoring, companies also see decoupling from China as a way to minimize financial, national security and IP risk.
Southeast Asia may not be the next ‘factory of the world’ even as production moves away from China. Sixty percent of American multinationals are ready to move production closer to their end markets, according to a Bain & Company study. That study also predicts thatproduction of goods for non-Chinese consumers will move closer to their target markets. Taiwan Tech Homeward Bound from China. Rising labor costs, individual censorship, environment taxes and social welfare costs have prompted 40 Taiwanese companies to invest $6B to move manufacturing back to Taiwan from China. "It's not so much about Trump, but about Xi Jinping," who is seen as creating a bad business environment. Asia-to-North America trades see capacity sink. The Bluewater Reporting World Liner Supply (WLS) Report found that Asia-to-West Coast North America trade capacity declined 6.81% between Q4 2018 and Q1 2019. The report further suggests that "the reduction in demand has caused a decrease in capacity and shows that the tariffs are beginning to have their intended consequences." The DHL Resilience360 report examines last year's major supply chain challenges and identifies trends that will shape the risk landscape in 2019, including recalls and safety scares, pollution fees, border delays and more. NABE Business Condition Survey offers some eye-opening perspectives on upcoming reshoring activity. - 40 percent of NABE members plan to open new domestic facilities within the next five years.
- Only 14% of Corporate Survey respondents plan to open new foreign facilities within five years. A quarter of those new foreign facilities are slated for Western Europe and a fifth for Mexico. Just 13% say they have plans to open new Asian facilities, down from 27% in the 2016 survey.
- When it comes to expansion plans, 43% of the respondents say they will expand a domestic facility within the next five years. Nearly 90 % have no plans to expand foreign facilities.
- More than 80% of corporate respondents have no plans to relocate an existing facility within the next five years. Of those that do have relocation plans, more than 60% will relocate domestically, with just 4% moving to an offshore or near-shore location.
Don’t Count on U.S.-China Trade Relations Warming Up Anytime Soon. The author of this article from Bloomberg reports that "Even those soft on China support tariffs now, even those that opposed them in the past. America should increase tariffs on China going forward. Today, those who’ve long worried about China’s policies are empowered to speak up." According to former Treasury Secretary Hank Paulson, "…politicians on both sides are actually applauding for tariffs—something, quite frankly, I never believed I’d see." And Scott Kennedy, a China expert at the Center for Strategic and International Studies states, "Xi Jinping is a hawk…and the lesson he draws is: Prepare for long-term hostility."
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