Manufacturing Leaving China? Here’s What You Need To Know
Among the factors that have coalesced to constitute the primary reasons that US companies are leaving China to return to their home country and other manufacturing venues in the Americas are the global COVID-19 pandemic, China’s incursions on the rights and liberties of the citizens of Hong Kong, and the continuing US-China trade war.
Recently, US Secretary of State, Mike Pompeo, stated that he believes that Hong Kong has lost the autonomy that the Chinese Communist Party (CCP) promised to respect when it was ceded to the CCP by the government of Great Britain in 1997. Specifically, Pompeo stated that “I informed Congress that Hong Kong is no longer autonomous from China, according to facts on the ground. America is with the people of Hong Kong.”
Another factor that may have a great effect on the trend of US companies leaving China is related to one of the main campaign promises made by Donald Trump. He stated that he would craft specific policies that would entice firms to move from the Asian nation back to the United States. For instance, in August, the US President vowed to create 10 million jobs in 10 months, in part by setting up tax credits for US companies that relocate manufacturing facilities to the United States from China.
Additionally, the Trump administration has acted on multiple fronts to further rebalance and rationalize American economic ties with China. This includes placing restrictions on Chinese companies such as the tech giant Huawei and computer applications creators such as TikTok.
The high price of economic dependency illustrates why US companies are leaving China
Since Donald Trump assumed the Presidency, he has repeatedly reiterated the importance of returning manufacturing operations from China to strengthen industry at home in the United States. He asserted that bringing production “back home” was critical to helping US workers to achieve the “American Dream.” When the coronavirus became a global problem, he went on to further state that the pandemic was evidence that, for the country’s long-term economic security and stability, supply chains that sustain the production of critically important manufactured goods should be repatriated. In a recent interview with Fox Business News, he observed that “We have supply chains all over the world. We should have all of them here in America.”
In addition to Trump’s comments on the topic, White House chief economic adviser, Larry Kudlow, has announced that “the government is seriously considering paying some of the costa associated with the repatriation of major US multinational companies currently based in China.” Such positive signals by the Trump administration are one of the principal reasons that US companies are leaving China.
Very noteworthy is the fact that the US President recently took a historic step towards stimulating the repatriation of the production of critically important pharmaceuticals back to the United States. These are items that are currently being produced mainly in China and India. Under the terms of a $354 million agreement, the Phlow Corporation, a Virginia-based generic drug manufacturer, will set up the first strategic reserve of ingredients that are needed to produce essential medicines to meet the country’s needs.
In addition to promoting the departure of companies from China, the White House is also considering the implementation of policies that are aimed at blocking US investment in the Asian nation. Among the measures that are currently being considered is the removal of Chinese companies from the US stock exchange. This is a move that would have a billion-dollar impact on China’s economy and would affect global giants such as Alibaba and Baidu. When these two companies made their debut on Wall Street, they attracted a combined investment of more than US $25 billion. Today the listing of Chinese companies on the New York Stock Exchange totals more than US $1.3 trillion.
According to the Nikkei Asian Review, US companies are leaving China. The publication recently reported that technology companies such as Hewlett-Packard, Dell, Microsoft, and Amazon are actively seeking to move significant parts of their business capacity outside of China. In the case of HP and Dell, these companies are seeking to reallocate up to 30% of their China-based activity to other countries. Other firms that are among US companies that are seeking alternatives to China are Google, Sony, and Nintendo.
Additionally, Toymaker Hasbro, Bath & Body Works parent company L Brands, and fashion designer Steve Madden have all outlined plans to substantially reduce their dependence on Chinese factories in the next few years. These developments will benefit the United States, as well as other nations in the Americas.
Made in China 2025
Manufacturing jobs in China have been on the decline since 2010, when the country began implementing its Made in China 2025 initiative. The goal was to boost domestic production by making Chinese manufacturers more competitive globally.
But what does this mean for you?
If you’re thinking about manufacturing overseas, here are three things you need to consider before you make the leap.
- How will you manage quality control?
- Will you be able to find enough skilled workers?
- Are you willing to invest in new equipment?
The U.S. Is Still the Best Place to Manufacture.
While other countries offer lower labor costs, the United States offers better infrastructure, access to capital, and a highly educated workforce. In fact, according to the World Bank, the United States ranks first among developed nations when it comes to the number of people with at least a bachelor’s degree.
There Are Other Countries That Can Do More Than China.
If you’re looking to manufacture products overseas, consider where else you might go. According to the U.S. Department of Commerce, Mexico, India, Vietnam, Indonesia, Malaysia, Thailand, Turkey, South Korea, Taiwan, and Singapore are just a few of the countries that can do more than China.
Don’t Panic! This Isn’t the End of Manufacturing.
While manufacturing jobs are leaving China, other industries are growing. In fact, according to the Bureau of Labor Statistics, employment in the United States grew by 1.3 million between 2010 and 2014. That means there are plenty of opportunities for those with skills in engineering, technology, management, sales, and customer service.
Start Planning Now.
If you’re thinking about moving your business out of China, start planning now. There are several things you need to consider before making the leap.
Contact our manufacturing specialists who will help you assist in your planning.