Even before COVID-19, companies were considering whether China continued to make sense for their offshore manufacturing operations. The U.S.-China trade war caused a sudden and substantial increase in the cost of imported Chinese goods, which catalyzed a shift in U.S. supply chains away from China and toward other countries. In 2019, the total manufactured goods imported to the United States from low-cost countries in Asia (including China), as a percentage of U.S. manufacturing gross output, declined for the first time since 2011. This decline is attributed to reduced imports from China and appears to be correlated with the ongoing U.S.-China trade war.
The global COVID-19 pandemic accelerated and compounded these trends by exposing additional supply chain vulnerabilities. Chief among them was an overreliance on a single, primary source of supply. As some observers correctly note, companies that previously diversified their international supplies in response to the U.S.-China trade war were better positioned to mitigate the effects of the pandemic. But, when a company decides to reduce its reliance on China, where does it go?
To determine the right mix of geographic locations for its operations, a company might engage in a "right-shoring" or "best-shoring" analysis, in which a company assesses the most appropriate and effective geographic location or locations for its processes. Right-shoring is a fact-specific analysis driven by commercial, operational, tax, legal, and regulatory conditions in that company's industry and for that company's particular product.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
