The pandemic exposed America’s reliance on foreign manufacturing and now supply chain diversification is a hot-button issue. The dependence on cheap Chinese labor and inexpensive imports was addressed during the Trump administration in the form of a trade war and a long-term tariff deal.

But the lessons from the ensuing Covid-19 plague have Congress and the Biden Administration searching for ways to revive the once iconic Made in USA label or, at least, how to nearshore manufacturers.

Can the Trade Imbalance with China be Reversed?

It’s important to acknowledge that China was not always an economic superpower. Until the turn of the 21st Century, trade between the U.S. and China was relatively balanced. During the 1970s, trade hovered around zero, with the U.S. holding the advantage of $250 million in 1975 and $1.36 billion in 1979.

The 1980s were not dissimilar, with the U.S. enjoying a trade surplus as high as $12.49 billion in 1985. These numbers began to shift heavily in China’s favor during the 1990s, with the highest advantage coming in 1998 at more than $43 billion. That’s right after corporations accelerated their offshoring.

The 2017 Tax Cuts and Jobs Act introduced a measure to help repatriate lost manufacturing operations. The signature law of the Trump Administration reduced the corporate tax from 35 percent to 21 percent. China levies a 25 percent corporate tax but routinely lowers that for select companies that relocate to the Asian nation. During the first 30 months of the Trump Administration, the focus on restoring Made in USA manufacturing resulted in a 170 percent increase over the previous 30 months.

Between incentivizing reshoring, the trade war, and the pandemic, the trade deficit between the U.S. and China dipped from $255 billion in 2016 to $215 billion (2017), $91 billion (2018), and $132 billion (2019). That trend reversed in 2020, when the trade deficit ballooned to $355 billion (2020), and a record $462 billion in 2021 when counting goods as well as services, according to Macrotrends. Although the post-pandemic surge of imports has largely waned, the U.S. continues to suffer massive and growing deficits.

China’s Medications, PPE Dominance Put Americans at Risk

It became abundantly clear the U.S. had allowed itself to become vulnerable to foreign manufacturing during the pandemic. Onshoring, nearshoring, and supply chain diversification took on national security implications.

In 2019, Politico highlighted the fact that American policymakers feared China could “weaponize” its medication exports. The article, titled “U.S. policymakers worry about China ‘weaponizing’ drug exports,” noted that medications could be withheld. It also stated the vast majority of common over-the-counter medications are imported from the Asian country, as well as 40 percent of all penicillin.

In 2020, the New York Times pointed out that the U.S. is essentially at China’s mercy when it comes to personal protective equipment (PPE) and disposable clothing. The NY Times stated China had a “stranglehold” over masks, Covid-19 test kits, gowns, and other items needed to combat the pandemic.

Although the Covid-19 crisis is largely behind us, lawmakers have not entirely figured out how to move manufacturing from China or how to nearshore manufacturers. There have, however, been a series of policy moves designed to encourage supply chain diversification.

What is Being Done to Promote Onshoring & Nearshoring?

One of the key economic events that seemed to motivate U.S. lawmakers to address supply chain diversification was the unexpected spike in container rates beginning in the fall of 2020. The cost of shipping a twenty-foot equivalent unit (TEU) from China to the U.S. spiked by more than 500 percent.

In less than one year, TEUs soared above $20,000, and the cost of consumer goods increased dramatically. These are ways onshoring and nearshoring are being addressed to secure supply chains and reduce dependence on China.

1: The CHIPS Act

U.S. automobile manufacturers and the military-industrial base rely on semiconductor chips. This small, highly advanced technology is necessary to run everything from missile radar systems to Bluetooth in passenger vehicles. During the pandemic, manufacturers could not complete orders due to semiconductor shortages.

The CHIPS Act provides $280 billion in federal funding to increase domestically manufactured semiconductors. It also offers $39 billion in subsidies and $13 billion for research and workforce training. Its primary goal is countering China’s ability to increase its semiconductor market share and American dependence.

2: Ocean Shipping Reform Act

Following the unprecedented spike in TEU rates and delays of American exports at ports, the Ocean Shipping Reform Act was passed in 2022. The Act protects U.S. exporters from having their shipments declined or wrongly delayed.

It also puts measures in place to prevent foreign shipping vessel companies from charging unnecessary demurrage and detention fees. These are costs leveled against U.S. companies for container movement delays. Overwhelmed ports and lack of storage space resulted in companies being charged fees at no fault of their own.

3: Friend-Shoring Improves Supply Chain Integrity

Also known as “ally-shoring,” this U.S.-promoted trend involves working closely with trusted countries. The idea is to deglobalize the supply chain by providing favorable trade agreements within select nations. The strategy has received criticism because it may lead to higher consumer prices. However, it can prove beneficial during times of crisis, such as the pandemic, when China was producing the PPE and disposable masks needed to slow the spread.

4: Reshoring Plants Increases American Job Opportunities

From 2000 to 2010, roughly 5.9 million jobs were lost as manufacturing plants exited the U.S. But since 2010, approximately 1.3 jobs were restored, and the trend seems to be heading in the American worker’s direction. Researchers indicate that the current reshoring climate, given the accompanying policies, has the potential to create another 1.5 million manufacturing jobs.

5: Re-imagining Trade Routes

Multinational corporations took a hit during the pandemic because they were reliant on Chinese plants and trade routes. Many have re-imagined their logistics by adopting supply chain diversification strategies. Reports indicate China’s manufacturing output shrunk from 2016 to 2022. These are examples of the manufacturing exodus.

  • Clothing and Accessories: Exports dropped by 4 percent.
  • Furniture: Exports dropped by 11 percent.
  • Footwear: Exports shrank by 7 percent.
  • Travel Products: Exports declined by 13 percent.

Organizations such as electric-car manufacturer Tesla opened plants in China. In recent years, iconic CEO Elon Musk has ramped up production and new facilities in Texas, with nearshoring investments reportedly moving forward in Mexico as well.

6: Nearshoring Proves Profitable

Corporations place a high value on the profits they can generate by selling goods, materials, and services in the U.S. What they do not necessarily find attractive is the high cost of materials, labor, and taxes. That’s why an increased number are employing nearshoring strategies to get the best of both worlds.

Mattel, for example, expanded its toy-making operation in Monterrey by investing $47 million to create its largest plant. China continues to lose leverage due to the growing importance of supply chain diversification.

A Wall Street Journal article indicated that more than 400 manufacturers recently expressed interest in building plants in Mexico as part of a nearshoring trend. From a business perspective, companies experience lower labor costs and can ship products across the U.S.-Mexico border with relative ease. Ports along the Gulf of Mexico and the Pacific Ocean also open cargo vessel supply lines.

7: Business Strategies to Reduce Dependence on China

It’s important to keep in mind the U.S. is not alone in its reliance on inexpensive Chinese imports. The EU, among others, unveiled a strategy to improve its supply chain diversification. India recently tapped the brakes on its trade relations with China after the deficit crossed the $115 billion mark during financial year 2021-2022.

That being said, these are ways companies can reduce their dependence on China.

  • Identify other sources of raw materials for products.
  • Redesign products to take advantage of materials closer to home.
  • Invest in inventory management software and technologies to reduce costs and lower risks.
  • Invest in cybersecurity to prevent intellectual property theft from Chinese Nation-State hackers.
  • Prepare to expand manufacturing facilities outside China.

It’s also essential to create a flexible manufacturing and shipping system that can pivot away from China in the event of a crisis. The ability to step up U.S.-based manufacturing remains the most secure way to remain in the American market. Companies can also benefit by onboarding a third-party logistics firm that can streamline supply chain movement.

As an industry-leading PPE manufacturer, International Enviroguard employs a diversified supply chain that includes Mexico, India, Vietnam, and USA-based operations among others. You can count on International Enviroguard to provide high quality disposable protective workwear on-time.