American companies leaving China in droves

business in china

Coronavirus could destroy China’s booming economy, as businesses pick up and move out of China.

According to Forbes’ Kennth Rapoza, companies were already winding down operations in China due to President Trump’s tariffs against the communist dictatorship.

But coronavirus–which started in the Chinese city of Wuhan and was then covered up for weeks by the Chinese Communist Party–may have been the final straw.

“Three decades ago, U.S. producers began manufacturing and sourcing in China for one reason: costs,” explained economist Patrick Van der Bossche, in Rapoza’s article.

“The trade war brought a second dimension more fully into the equation–risk–as tariffs and the threat of disrupted China imports prompted companies to weigh surety of supply more fully alongside costs,” he said. But “COVID-19 brings a third dimension more fully into the mix­, and arguably to the fore: resilience–the ability to foresee and adapt to unforeseen systemic shocks.”

In layman’s terms? With tariffs, President Trump exposed the dangers of a business being dependent on an enemy regime. With coronavirus, businesses now know they can’t trust China to maintain a stable business climate.

As a result, some American manufacturers are moving back to the United States–where lower taxes and slashed regulations under President Trump had strengthened the sector before the pandemic.

But the biggest beneficiaries will be other, cheaper countries in Southeast Asia, including Vietnam. Mexico, due to its proximity to the United States and President Trump’s signature USMCA trade deal, has also emerged as a favorite spot.

“The threat going forward of political anger toward China, not to mention future pandemics stemming from China (the first SARS came from there in 2002-03), means that companies will want to hedge their supply chain strategy by spreading their risks,” Rapoza explained.

He cautioned that this doesn’t mean manufacturing will leave China altogether–but, rather, that “Made in China” will not be the norm for most Western countries moving forward.