Business 4.0
Factors Influencing Reshoring
The Ramifications of Coronavirus Against a Backdrop of Tariff Uncertainty
T
he ramifications of the coronavirus against the backdrop of tariff uncertainty have companies rethinking their supply chains and considering what to reshore. Even before 2019’s turmoil, the number of companies reporting new reshoring and FDI (foreign direct investment) was at the highest level in history in 2018. China sourcing costs had already been climbing, but disruptions from tariff uncertainty compounded by the coronavirus disruptions are influencing more reshoring. Current conditions warrant shortening supply chains to reduce risk and increase resiliency. Current conditions are accelerating reshoring.
Coronavirus Impact Many Chinese factories were temporarily shuttered due to the COVID-19 outbreak, disrupting global supply chains and affecting U.S. importers and manufacturers. Shipping companies reduced the number of seaborne vessels as a measure to stop the outbreak,
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10 IMD AUGUST 2020
creating logistics bottlenecks. Countries restricted exports for their own self-sufficiency. As factory closings and logistics issues squeeze U.S. companies, many are considering reducing their reliance on China. Are the tariffs and the coronavirus, together, enough to seriously reconsider the benefits of localization and justify reshoring? A recent report by UNCTAD (United Nations Conference on Trade and Development) said, “the COVID-19 outbreak will potentially accelerate existing trends of decoupling and reshoring driven by the desire…to make supply chains more resilient.” According to a February 2020 Thomas study, 60% of U.S. manufacturers said business was impacted by the coronavirus and 28% were seeking alternative domestic sources of supply to increase resiliency. A May, 2020 follow-up study showed 64% of respondents were likely to reshore to North America, a 10% increase from March. A key finding from a separate June 2020 study showed 75% of respondents expected a significant or moderate increase in U.S. components.
