Rosemary Coates, executive director of The Reshoring Institute, explains why the coronavirus pandemic might finally be the crisis that drives manufacturers to shift production from China back to the U.S.
The progress of reshoring in recent years has been “a slow march,” says Coates. Events that might have been expected to trigger a move by manufacturers, including passage of the Tax Reform Act of 2017 and Section 301 penalty tariffs on imports from China, didn’t have the anticipated effect. It took the pandemic to cause a true shift in thinking — and action
The difference, says Coates, was that the pandemic awoke in manufacturers a newfound understanding of supply-chain risk. Cost continues to be a major concern, but companies are now also looking to lessen the chances of supply-chain disruptions caused by events that occur thousands of miles from their intended markets. One might assume that previous disasters, such as the earthquake and tsunami that hit Japan in 2011, would have had that impact. But the pandemic was different because of its scale and duration. “It introduced disruptions country by country, around the world,” Coates says. In addition, companies woke up to the realization that just-in-time stocking strategies, which minimize inventory in the pipeline, can lead to severe shortages of product at crucial times.
Moving production from China to the U.S. is no simple matter, Coates acknowledges. It involves the simultaneous relocation of supporting suppliers, as well as setting up new factories and finding adequate labor. Nor are companies simply contemplating shifting all production from one place to another. The move today is toward diversification of supply, so that companies experiencing a factory shutdown or disaster in one part of the world can quickly locate alternative supply in another region.