The coronavirus COVID-19 that originated in China may be the last straw that finally has triggered American companies to exit China. In the Global manufacturing consulting firm Kearney’s seventh annual Reshoring Index released on Tuesday, co-author Patrick Van den Bossche writes:
Three decades ago, U.S. producers began manufacturing and sourcing in China for one reason: costs. The trade war brought a second dimension more fully into the equation―risk―as tariffs and the threat of disrupted China imports prompted companies to weigh surety of supply more fully alongside costs. COVID-19 brings a third dimension more fully into the mix, and arguably to the fore: resilience―the ability to foresee and adapt to unforeseen systemic shocks.
As Kenneth Rapoza writes in Forbes, the Kearnsey report revealed a “dramatic reversal” because domestic U.S. manufacturing in 2019 outdid 14 Asian exporters tracked in the study. Rapoza notes succinctly, “Manufacturing imports from China were the hardest hit.”
Rapoza opines that other nations in southeast Asia and Mexico may become primary target spots for American companies. He adds, “The new SARS coronavirus has literally closed the economies of the Western world and created a public relations nightmare for China.”
The Kearney report states that companies “will be compelled to go much further in rethinking their sourcing strategies, (and) their entire supply chains.”
In mid-March, Senator Marco Rubio (R-FL) told Fox News of an article in Xinhua, the Chinese state-run media agency, that stated: “If China retaliates against the United States at this time, in addition to announcing a travel ban on the United States, it will also announce strategic control over medical products and ban exports to the United States. Then the United States will be caught in the ocean of new coronaviruses … Also according to the U.S. CDC officials, most of the drugs in the United States are imported…If China banned exports, the United States will fall into the hell of a new coronavirus pneumonia epidemic … We should say righteously that the U.S. owes China an apology, the world owes China a ‘thank you.’”
Rubio warned “they can threaten to cut us off from our pharmaceutical supplies, they could trigger a domestic problem here that would make it difficult or us to confront them. It’s a tremendous amount of leverage.”
Senator Tom Cotton, who introduced a bill to protect the United States from dependence on China for pharmaceuticals, stated, “The Chinese Communist Party has threatened to cut off America’s access to vital drugs in the midst of a pandemic caused by its own failures. It’s time to pull America’s supply chains for life-saving medicine out of China and make the CCP pay for contributing to this global emergency.”
Cotton’s Senate website noted how dependent the United States is on the supply of pharmaceuticals from China:
Today, most active pharmaceutical ingredients (APIs) used for drugs in the United States are made in China, including 95% of U.S. imports of ibuprofen, 70% of acetaminophen, and 40-45% of Penicillin. This vulnerable state of affairs is due to the Chinese Communist Party having spent a generation cornering this strategic market.
Rapoza concludes in Forbes, “China is the go-to source for ibuprofen, hazmat suits, rubber gloves, surgical masks, ventilators … companies will want to hedge their supply chain strategy by spreading their risks. That doesn’t mean a full abandonment of China. It does mean China’s days as the go-to manufacturing hub for the Western world are over.”