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Global Supply Chain News: US Companies more Talk than Action on Moving Out of China, New Report Says

 

Major Effort to Leave China Even in Part, but Virus has Caused Companies to Rethink Risk, PwC Survey Says

 

 

Oct. 28, 2020
SCDigest Editorial Staff

US companies would like to move at least some manufacturing out of China – though that doesn't necessarily mean back to the US – but there seems to be a lot more talking and planning than doing.

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"Most manufacturers seem to be merely forging plans," PwC report notes, adding that the "Relocation decisions are costly and can take years to deliver."

 
 

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That's one of the key takeaways from a recent report from PwC that surveyed over 500 corporate executives, looking at a variety of issues connected in some way to the outcome of the Nov. 3 presidential election, including plans for product sourcing.

"Executives recognize US trade relations are in the midst of a transformation that will last beyond November," the report notes. "On the one hand, the pandemic has accelerated the desire to unwind reliance on long and highly outsourced supply chains. On the other, decoupling from global trade partners is difficult to do."

PwC says the survey shows executives support aspects of the "made in USA" policy momentum. For example, 46% "strongly agree" that the federal government should boost domestic production of essential goods to help the US economy.

But how "essential goods" are defined is of course a key issue: does it just refer to virus protection equipment and pharmaceuticals and related ingredients? What about technology products, or metals?

When asked specifically about US-China trade, 28% "strongly agree" that trade restrictions will increase, regardless of the outcome of the election.

In a related interview on CNBC last week, PwC US chair Tim Ryan said that the idea of moving away from China sourcing first came into focus in response to President Donald Trump's trade war with China, but it only gained traction across corporate America as a result of the coronavirus pandemic.

"Covid really put a spotlight ... on supply chain risk, and one of the things that we're seeing is supply chain de-risking has moved all the way up to the boardroom level, as we see now concentrations in our supply chains that was maybe not evidenced before," Ryan said.

Ryan added that the beneficiaries of moves out of China are likely to be countries in Southeast Asia, Mexico and the United States.


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The trade war with China resulted in each side placing billions of dollars worth of tariffs on the other's goods and caused some companies to move sourcing to other countries – at least in part.

 

Making that move is never easy, for reasons ranging from the huge supply base in China to access to the giant Chinese market. On top of that, strtegies of leaving China for other countries has been hobbled by the global pandemic.

That's the case for the maker of Roomba robot vacuum cleaner, which is shifting production to Malaysia to avoid the US import tariffs.

"We were hoping to get it done by the end of this year," iRobot CEO Colin Angle told CNCB last week. "Unfortunately, the pandemic has slowed down our ability to move into Malaysia, so that's going to move into [2021] before we get it done."

iRobot appears to be an exception though.

"Most manufacturers seem to be merely forging plans," PwC report notes, adding that the "Relocation decisions are costly and can take years to deliver."

It notes that "investment tax credits or other types of incentives for setting up local R&D or operations could encourage more onshoring."

Is moving out of China more talk than action? Let us know your thoughts at the Feedback section below.

 

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