Rupa Subramanya is a researcher and commentator. She is a distinguished fellow of the Asia Pacific Foundation of Canada and the co-author of “Indianomix: Making Sense of Modern India.”
When then U.S. President Donald Trump imposed steep tariffs on Chinese goods worth $250 billion in 2018, he justified the policy by arguing that it would spur the return of manufacturing jobs and form an important plank of his “America First” policy.
Triggering a protracted and bitter trade war between the two countries, with each side imposing punitive tariffs on billions of dollars worth of the other’s goods, the disruptions caused to global supply chains have been significant, with many multinational companies doing business in China suddenly facing an uncertain global environment.
In an effort to avoid the trade war’s destructive crossfire, many businesses considered diversifying their production and distribution channels toward other Asian production and distribution facilities or elsewhere in the West. What Trump’s tariffs did not do was trigger the large-scale return of manufacturing to U.S. shores, with many companies preferring the lower costs still to be had elsewhere in Asia.
The bigger opportunity to diversify away from China came in 2020 with the onset of the COVID-19 pandemic, with countries such as the U.S., the U.K., Australia and India, as well as the European Union, blaming Beijing for withholding crucial information and failing to curb the spread of the disease, and suggesting that it would no longer be “business as usual.” Trump even went so far as to accuse China of abetting the spread of the virus.
As much of the global economy ground to a halt, the pandemic magnified the weaknesses and vulnerabilities of global supply chains. Countries including Japan and France began encouraging their companies to move production and distribution back home with tax incentives, subsidies and other benefits, and multinationals were once again impelled to undertake a broader reassessment of supply chains.
After more than two years of the pandemic, the ongoing U.S.-China trade war under current U.S. President Joe Biden, Trump’s America First agenda has continued much as before, albeit rebranded to make it appear less protectionist, and the new challenges to global supply chains presented by the war in Ukraine, the case for restoring has presumably never been stronger. What, then, is the state of reshoring today?
A damaged Make America Great Again hat lies on the ground in Tulsa, Oklahoma: Trump’s America First agenda has continued much as before. © Reuters According to global management consultants A.T. Kearney’s annual Reshoring Index surveyed in 2021, manufactured goods imported into the U.S. from 14 Asian low-cost countries accounted for 14.5% of U.S. gross domestic manufacturing output last year compared to 13% in 2020. That means the U.S. continued to import more manufactured goods from low-cost countries despite disruptions to the global supply chain.
Still, this does not prove that reshoring did not occur since, absent global supply disruptions, the percentage of imports could have increased even more than it did. Furthermore, the tide could be turning once again in favor of reshoring.
A survey of manufacturing executives conducted by A.T. Kearney found that large sections of U.S. manufacturing may just be returning home, or to neighboring Mexico from the 14 Asian low-cost countries included in its Reshoring Index. Reshoring sentiment is also on the rise, with 92% of respondents feeling positive about reshoring, compared to 78% the previous year.
As for those with manufacturing operations in China, about 79% of those surveyed said they had either moved part of their operations back to the U.S., or plan to do so in the next three years.
A.T. Kearney’s China Diversification Index, a barometer that tracks the move away from China of manufacturing to other Asian low-cost countries, China’s share fell from 66% in 2018 to 55% in 2021, indicating greater diversification away from the Asian giant.
Similarly, a survey of South Korea’s top 500 businesses conducted for a week through Feb. 24 by the Federation of Korean Industries showed that 28% of the 105 companies surveyed said they were presently considering reshoring back to South Korea. A similar survey from May 2020 indicated only 3% of South Korea’s top 500 businesses were contemplating relocating their operations back home.
Reshoring sentiment is, after all, just that, a sentiment. We will have to see if the sentiment leads to action. Apart from everything else, China’s aggressive pursuit of a zero-COVID policy in year three of the pandemic has resulted in such a harsh lockdown in Shanghai since March that residents are being banned from leaving their homes and factories are being forced to shut down.
Such harsh restrictions have not been seen anywhere else in the world since the early days of the pandemic, and certainly not since the introduction of widespread COVID vaccination.
The location of the world’s largest container port and the recently imposed COVID restrictions in Shanghai have led to massive congestion at the port, with cargo shipments piling up and sitting idle for days on end before being picked up by loading trucks. This is not good for businesses operating in China.
What former U.S. President Trump could not make happen through punitive tariffs on Chinese-made goods, Beijing may have ironically expedited with its zero-COVID policy: a spike in reshoring back to the U.S. and other advanced economies in the West.
