US Companies Continue to Move Operations Out of China

US Companies Continue to Move Operations Out of China

After almost 1.5 years of the U.S.-China trade war, some cracks are starting to show in the commitment of U.S. companies to their China operations. In mid-2019 as well as in mid-2020, around 15 per cent of companies surveyed said that they were moving at least part of their operations out of China.

Moving back to the U.S. was the less popular option. More companies said they were moving “elsewhere”, the most popular destinations being Thailand and Mexico according to the U.S.-China Business Council.

Besides the trade war, there are other factors at play making China a less competitive choice for all manufacturers. As the country is developing, wages have risen and regulations have become more stringent, making other locations seem more appealing.

While in 2019, 17 per cent of companies said they had reduced or stopped planned investments in China, that number rose to 24 per cent in 2020. The trade war was still the most cited reason for investment reduction this year, followed by the COVID-19 pandemic.

However, The New York Times believes it may be more of a cause of COVID-19 pandemic than as a result of the trade war between China and the US. Certainly, the companies are not relocating back to the US.

“Covid has generated this new imagination of worst-case scenarios,” said Emily J. Blanchard, a professor at the Tuck School of Business at Dartmouth College. President Trump has used the pandemic as an opportunity to encourage more companies to bring manufacturing back to the United States. But for all the president’s criticisms of global supply chains, the economic incentive to outsource still prevails.

The pandemic has prompted a broader reassessment of the risks of global supply chains, but executives are deeply uncertain what demand for their products will look like in the coming months and years — hardly the environment to encourage big investments in new American factories.

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