US Companies Rush to 'Decouple from China' Amid Supply Chain Disruptions

[Asia Economy Reporter Yujin Cho] American apparel company America Knit is considering relocating its production factories from China back to the United States. Headquartered in Swainsboro, Georgia, the company is reviewing plans to bring back dozens of production bases that were previously moved to China and other countries during its peak period. While production facilities in China benefit from the easy and inexpensive procurement of locally grown cotton, the severe logistics disruptions and rising costs following the COVID-19 pandemic have become decisive reasons for considering a return to the home country.

On the 5th (local time), the US New York Times (NYT) reported that amid supply chain disruptions caused by COVID-19, a reshoring movement is gaining momentum as American manufacturers rush to move operations from China back to the United States. This is due to the assessment that normal production activities have become difficult in China because of frequent factory shutdowns and container crises causing logistics risks.

Consulting firm EY-Parthenon particularly predicted that companies in sectors such as automotive, semiconductors, defense, aerospace, and pharmaceuticals will accelerate their return to the United States.

American automaker General Motors (GM) announced last month that it is considering investing $4 billion (approximately 4.8 trillion KRW) to expand its electric vehicle and battery production plants in Michigan. In October last year, Micron Technology revealed plans to invest more than $150 billion over the next 10 years in semiconductor chip manufacturing and research facilities, some of which will be built in the United States.

The NYT reported that the US government is encouraging domestic manufacturers to return through subsidies. The Joe Biden administration is rolling out reshoring support measures, including providing $52 billion in subsidies to domestic semiconductor manufacturers to attract production bases.

Starting a trade war with China and revitalizing American manufacturing were campaign promises of former President Donald Trump, but the actual movement to return to the US accelerated after the COVID-19 pandemic.

Claudio Nizek, head of advanced manufacturing and mobility at EY-Parthenon, said, "The (dependence on China) may have reached a tipping point." Decades of reliance on China as a source of product manufacturing and raw materials are coming to an end due to COVID-19-related logistics disruptions and soaring freight costs.

As supply chain disruptions have made it increasingly difficult to secure goods on time, companies have found it important to bring production bases closer to their markets. Tim Ingle, vice president of corporate strategy at Toyota North America, said, "Having production plants close to customers has become absolutely essential after experiencing the COVID-19 pandemic." Additionally, as "sustainability" has become a key issue for global companies, efforts to reduce carbon emissions and fossil fuel consumption during transportation are also fueling this trend.

Accordingly, some manufacturers are turning their attention to Latin American countries close to the US, such as Mexico. EY-Parthenon noted that Mexico is becoming an alternative because, unlike recent problems with labor shortages and equipment deficits during port handling, goods can be transported by truck without relying on containers, making logistics not much different from the US.

This supply chain restructuring trend is not limited to the US. European countries such as Germany and France are also moving factories to nearby Eastern European countries, which offer advantages in wages and logistics.

On the other hand, some analyses suggest that reshoring from China will not be easy for industries where labor remains essential in the production process, such as footwear, furniture, and lighting. Willy C. Harvard, a professor at Harvard Business School, pointed out that "China still holds an advantage over the US in terms of labor and raw material supply," adding, "It will be difficult to overcome the hourly wage of $2.50."

This content was produced with the assistance of AI translation services.