Even before President-elect Donald Trump and his tariff-heavy agenda won the White House, top companies were already planning to rapidly shift production from China, according to a new study.
Based on a survey of 166 CEOs and COOs, Bain and Company found that the share of companies operating outside of China will increase from 55% in 2022 to 69% in 2024.
Where will they go? The top destination was the Indian subcontinent, where 39% of executioners said they were going. This was followed by 16% moving to the US or Canada, 11% to Southeast Asia, 10% to Western Europe, and 8% to Latin America, rounding out the top five destinations.
Meanwhile, more companies are “reshoring” operations in their home countries or “closer-shoring” to neighboring countries.
The July survey found that the share of executives whose companies plan to move supply chains closer to market rose to 81 percent this year from 63 percent in 2022. Closer to home is the mix of offshore production and manufacturing.
Why do companies move?
Bain attributes this trend to growing geopolitical uncertainty and rising costs. But for US companies, which made up 39% of the survey, the 2022 Inflation Act was another factor in revitalizing operations.
One of President Joe Biden’s signature domestic policy achievements, the act offers incentives and tax credits in key sectors such as green energy technologies. Another Biden initiative, the CHIPS Act, also encouraged domestic production of semiconductors.
Certainly, there are many issues that affect a company’s supply chain decisions. Bain’s 2022 survey showed that geopolitics, including tariffs, regulations, and inflation, was a leading consideration. But labor conditions, climate and environmental characteristics, as well as disaster risks such as natural disasters, terrorism and health risks, were top of mind.
The risk of over-reliance on Chinese factories became clear when Trump imposed tariffs on Beijing as part of his “America First” economic policies during his first term. Supply chain disruptions during the pandemic also highlighted the need for further diversification.
Then Biden kept Trump’s China tariffs in place, imposed restrictions on US investment in China, and encouraged more domestic production. And for his second term, Trump has vowed to raise tariffs across the board, including tougher duties on China.
Trump Tariffs and China’s Economy
A U.S. tariff hike on China could deal another severe blow to the world’s second-largest economy, already battered by a real estate crash, debt woes and even inflation.
That’s because exports are one of China’s key economic engines, although Beijing’s wave of stimulus measures has shown few signs of boosting domestic consumption.
Still, the flood of cheap exports China is sending around the world has prompted other countries to impose more trade barriers against Beijing.
Meanwhile, foreign investment in China is suffering a three-year slump that continued last quarter. Foreign investment fell by $13 billion in the first nine months of the year, despite China’s efforts to revive growth.
