NEWS & EVENTS

Trade war and Covid-19 closed the period when China was the "world factory", Vietnam took the lead in a new group of destinations.

29/04/2020
Because of the trade war, American companies are leaving China, and this number will surely increase due to the Covid-19 pandemic.
The author Kenneth Rapoza assessed in an analysis on Forbes in early April, saying that globalization with China as the center is becoming "outdated".

Trade war and Covid-19 are two factors that turn the situation around

Global manufacturing consulting firm Kearney, the United States, has released the Reshoring Index - a measure of the process of moving a business or a portion of businesses based in another country back to the original country - 7th annual report, showing the "dramatic reversal" of the trend in 5 years when US domestic production in 2019 accounted for a significantly larger share than the other 14 Asian exporters followed. track in research.

The Reshoring Index compares total US production with imports from 14 low-cost economies in Asia.

The total value of all imports from 14 Asian countries/territories dropped from US $ 816 billion in 2018 to US $ 757 billion in 2019, down 7% at the time of solid economic growth. of America.

According to Kearney, the contraction was mostly due to a decline in imports from China - the sharpest decline at 17% due to taxes.

Last year, US companies took the initiative to review their supply chains, either persuading Chinese partners to relocate their locations to Southeast Asia to avoid tariffs or to completely deny supply. from China.

"Three decades ago, American manufacturers started producing and sourcing in China for only one reason: Cost. The trade war has brought another dimension to the" full "equation. more and more balanced: Risks: Taxation and the threat of interrupted Chinese imports cause companies to weigh the supply security associated with costs. third noteworthy: Resilience - the ability to predict and adapt to systemic, unpredictable shocks "- Patrick Van den Bossche, Kearney partner and co-author of the 19-page report is now, point out.

The main beneficiaries of this are smaller countries in Southeast Asia, led by Vietnam. With the US-Mexico-Canada Free Trade Agreement (USMCA) in 2019, Central American Mexico has also become a preferred source of supply.
 
photo 1 1587864539590719519267
American companies tend to leave China to disperse risks depending on this "world factory" (Artwork: Reuters)
 
The days when China was the manufacturing center ended

By 2020, the trade war seems to be on hold, but to make way for the global health crisis, triggered by the first Covid-19 epidemic in Hubei province, China.

The new strain of corona virus (SARS-Cov-2), which causes Covid-19, has shut down economies and plagued many governments. Businesses were unable to obtain online supplies in February and early March due to the shutdown of factories in China, and companies in the US stalled.

When China started to stand up and "keep up", the US became the center of the Covid-19 pandemic. Even as China is slowly healing, the United States is still caught in a deadly pandemic.

According to the Kearney report, the full range of social and economic losses that a pandemic can cause is still not fully clear. But whatever the outcome, returning to the status quo of Chinese trade as before the pandemic was impossible.

Kearney predicts companies "will be forced to take further action in reviewing their supply strategies, [and possibly] their entire supply chain."

Specifically, the authors in Kearney's report wrote that they hoped that from this pandemic, companies would increasingly be more likely to disperse risks instead of relying solely on China.

China is currently the main source of ibuprofen (medicine), protective clothing, rubber gloves, medical masks, ventilators and toilet paper, etc. for countries to prevent epidemics. Senators Josh Hawley and Tom Cotton of the Republican Party raised the issue of how this should not become a matter of national security.

The threat comes from political anger over China, not to mention future pandemics that companies will want to protect their supply chains by dispersing risks.

That does not mean China will be completely isolated. It just means that the days when China is the manufacturing center of the West have ended.
photo 2 15878645395912036065189
Workers work in an LED factory in Dongguan City, Guangdong Province, China. About 70% of LED bulbs in the world are made in China (Image: Getty)
Vietnam is a new destination in Asia

Kearney's China Diversification Index (CDI) tracks changes in US imports from China and other Asian economies on the list. China is still at the top, but increasingly losing its "pie" under US President Donald Trump.

In 2013, the CDI's base year, China held 67% of all Asian-made goods in the United States. By the second quarter of 2019, the figure was down to 56%, which is a drop of more than 1,000 basis points.

Of the US $ 31 billion worth of US imports that have left China, about 46% has been absorbed by Vietnam, sometimes by the same Chinese suppliers who have left the mainland. According to Forbes, Vietnam has exported an additional $ 14 billion worth of goods to the U.S. in 2019 compared to 2018 thanks to that change.

Mexico is "China of the Americas".

Kearney introduces near-to-far trade rate (NTFR) this year. It tracks the movement of US imports to near-shore production in Mexico.

Since 2013, the NTFR has fluctuated steadily between 36% and 38% - that is, for every USD of US manufactured goods from Asia, there are about 37 cents worth of imports from Mexico.

That has changed with USMCA.

Based on the value of the US dollar, the total value of manufactured goods imported from Mexico to the US increased by 10% in the period of 2017-2018, from US $ 278 billion to US $ 307 billion, and an additional 4% from 2018 to 2019, with a total import value of $ 320 billion - based on Kearney's report.

"The door for 'rebels' has clearly been opened by US-China trade disputes, for the benefit of these countries mainly lies in the types of products affected by tariffs," Yuri Castano, manager at Kearney and co-author of the study said.

"Clearly, the trade war has caused American companies to start thinking and reshaping their supply networks."

Older articles

Sign up to download the profile

Complete your information in the form below

You did not use the site, Click here to remain logged. Timeout: 60 second