US firms increasingly eyeing manufacturing ‘backups’ as China’s zero-Covid policy accelerates reshoring

Vietnam, Thailand, Mexico, India and South Korea are seen as ‘prime candidates’ for a so-called China plus one strategy to diversify manufacturing

Reshoring activities were heavily seen in 2018 and 2019, when the US-China trade war hit American manufacturers with import tariffs of up to 25 per cent

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Apple’s iPhone exports from India reportedly crossed US$1 billion between May and September this year, which was regarded as “healthy growth” in the company’s manufacturing export scale. Photo: AFP

Published: 12:00am, 9 Nov 2022Updated: 9:01am, 9 Nov 2022

American companies are increasingly looking outside China to find a “backup” for manufacturing operations due to their falling confidence with Beijing’s zero-Covid policy, according to a US-based global consulting firm.

The “prime candidates” for a so-called China plus one strategy, which seeks diversification for manufacturers by reducing reliance on China as a production base, include Vietnam, Thailand, Mexico, India and South Korea, according to Chicago-headquartered Kearney.

“This sentiment will continue even if Beijing lifts the zero-Covid policy after a few months because manufacturers are sensitive to unpredictability,” said Shay Luo, a Kearney principal who helped write Kearney’s 2021 reshoring index report.

“Although many of them are speculating what’s going on in China and taking the wait-and-see approach, Covid has accelerated the expansion outside of [the country].”

Kearney’s 2021 reshoring index showed that US imports of manufactured goods from Asia’s low-cost countries and regions totalled 14.49 per cent of its domestic gross manufactured output last year, up from 12.95 per cent in 2020.

Reshoring involves bringing manufacturing and services back to or closer to a firm’s home country from overseas, often from China to the US, Mexico or Canada.

The growth of reliance on supply chains in Asia has cancelled out the active reshoring activities seen in 2018 and 2019, when the US-China trade war hit American manufacturers with import tariffs of up to 25 per cent, according to the Kearney report.

But starting in the last quarter of 2020, the report added, reliance on China “diminished” to 55 per cent from 66 per cent in 2018 as other Asian low-cost countries began to recover from the coronavirus pandemic.