Businesses will never pull out of China completely since it represents too large of a market in itself to ignore. But the virus has put many businesses on notice that they need to diversify their supply chains. At the same time, President Trump and members of Congress are providing additional incentives by vowing to change trade rules to discourage Chinese sources.
The trend of manufacturers rethinking China as a source began well before the virus, said Michael Dunne, director of ZoZo Go, a China-based automotive consulting group. Tariffs sparked by the Trump administration's trade war with Beijing forced many companies to realize that they depended too much on one region and were vulnerable if the terms of trade were altered. Many were well into a search when the year started for other places in Asia and the Pacific region to source materials or to establish manufacturing.
"Now, with the coronavirus, the urgency surrounding that has been amplified. Manufacturers and suppliers find themselves really hostage to events inside China and that, without sources outside of China, they are vulnerable," Dunne said in a podcast hosted by the Detroit-based think tank Center for Automotive Research.
The nonprofit Institute for Supply Management reported Thursday that 62% of companies report delays in receiving orders from China and that 53% report having a difficult time even getting information regarding what is happening inside China. The ones who are dealing with the virus best are the ones that diversified their supplier base previously, ISM chief Thomas Derry told the Washington Examiner.
"The move to diversify definitely accelerated in the fall when the 25% U.S. tariffs on Chinese goods became apparent. Getting alternate sources of supply became the primary strategy for many companies," Derry said. "The combination of the tariffs and now the coronavirus outbreak has accelerated it even further. Companies that were on the fence and saying, 'One of these factors we could deal with,' are now saying this is too much."
It isn't that China is now viewed as toxic by businesses, Derry added. It still has a lot of advantages, such as modern infrastructure. But the days when companies thought that China was a one-stop source have passed.
Related: Hot Air - Chinese State Media Warns It Could Cut America’s Pharmaceutical Drug Supply