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China’s industrial base has recovered strongly from its coronavirus shutdown in the first two months of the year, while many alternative markets are still struggling to contain their outbreaks and return to work. Photo: EPA-EFE

Coronavirus, US-China trade war see 95 per cent of American firms wanting to ditch Chinese suppliers

  • A Qima poll of 200 companies with global supply chains found that 95 per cent of US respondents planned to change to suppliers outside China
  • Coronavirus, trade war and the US-China rivalry are souring business ties, but firms have been warned that shifting suppliers is easier said than done

Jaded by two years of trade war tariffs, worried by the disruptive coronavirus pandemic and anxious about the crumbling US-China relationship, a vast majority of American buyers are looking to shift their supplier base away from China, new research shows.

But with much of the world still under some form of lockdown, and with few markets able to compete with China on cost or quality, sourcing specialists have warned US firms that switching is “not like flipping a switch”.

A poll of 200 companies with global supply chains conducted by sourcing specialists Qima in June found that 95 per cent of respondents in the United States planned to change suppliers away from China, due to the confluence of current issues and the uncertainty of future trading patterns.
The same survey found that fewer than half of European Union respondents had immediate plans to shift their sourcing, suggesting that the crux of the problem lies in the US-China rivalry.

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The trend is not new as firms have been seeking lower-cost alternatives to China for years, with many scrambling to join the exodus when tariffs first hit in July 2018.

But the survey suggests a sharp uptick in demand among big American companies for goods not made in China, as the superpower relationship goes from bad to worse.

The irony is that China’s industrial base has recovered strongly from its coronavirus shutdown in the first two months of the year, while many alternative markets are still struggling to contain their outbreaks and return to work.

“We have been helping clients, mainly US companies, source further afield for the past two years. [The recent tensions and the coronavirus] has certainly accelerated that trend,” said Simon Archer Perkins, chief operating officer at ET2C International, a sourcing and procurement firm. “But currently the more immediate focus and priority is access to their suppliers, given companies without any local presence are effectively locked out of their supply chain right now.”

Finding suppliers can be a nightmare and there are huge infrastructure bottlenecks
Julien Brun

Julien Brun, Ho Chi Minh City-based managing partner at CEL Consulting, a supply chain advisory, said that big companies like Apple, Samsung and Nintendo have already pushed ahead with moving sizeable manufacturing capability from China to Vietnam, which is also beginning to recover strongly from the pandemic shutdown.

However, he warned that such moves are more challenging for smaller firms, particularly at the moment.

“Lots of firms want to move from China to Vietnam, but there are plenty of roadblocks. It will take time – finding suppliers can be a nightmare and there are huge infrastructure bottlenecks,” said Brun.

Qima’s research tallies with other reports suggesting that businesses have grown weary of tariffs and disruption to their operations.

The American Chamber of Commerce in Shanghai found in May that 74.9 per cent of members said the increases in tariffs on both sides were having a negative impact on their businesses.

More than 40 per cent, meanwhile, have or have considered relocating manufacturing facilities outside China – a different trend to shifting sourcing strategy, but indicative of the overall mood among US companies.

A Pew research poll conducted in March, meanwhile, found that 66 per cent of Americans held an unfavourable view of China, up from 47 per cent in 2017, suggesting that as the US presidential election grows closer, China will be a bigger topic for discussion.
Not many companies actually have the vision to have done this over the long term, you cannot do it overnight
Hans Till

Hans Till, a sourcing consultant in Hong Kong, confirmed that he has been receiving more requests from US firms to find alternatives to China of late, but warned that it is “not just as simple as flipping a switch”.

“Not many companies actually have the vision to have done this over the long term, you cannot do it overnight,” said Till. “It is possible, but not from one day to the next. These days everything is in a mixer, people are uncertain about supply chains, but very few have a strategy.”

Alan Scanlan, founder of Hong Kong-based sourcing specialist Newlands Sourcing, said that he has not had any such direction from his US clients, “since many of them are on lockdown and aren’t ordering anything anyway”.

“But to move suppliers takes a long time, you need to source a factory and then samples … it’s a complicated process that could take six to 12 months,” Scanlan said.

No matter what [US President Donald] Trump is saying, if many small firms without huge budgets want to make new products, they will still look to China
Fabien Gaussorgues

Some manufacturing and sourcing professionals, though, expressed surprise at the scale of US firms looking to diversify away from China.

Fabien Gaussorgues, chief operating officer at sourcing and supply chain firm Sofeast, based in Shenzhen, said he has been inundated by potential US clients since America went into lockdown, with many looking to develop new products in China.

“It defies my expectations and I cannot really explain it – but I am seeing far more American projects now, even more than European,” he said. “No matter what [US President Donald] Trump is saying, if many small firms without huge budgets want to make new products, they will still look to China.”

This article appeared in the South China Morning Post print edition as: US firms want to ditch China, but warned it ‘is not like flipping a switch’
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