Per Hong, partner and core member of the strategic operations and transformation practice of Kearney, describes the many factors that are affecting the flow of trade with China.
The trade relationship between the U.S. and China has been subject to rising tensions for at least the past seven years. But it took the COVID-19 pandemic to reveal just how important international supply chains, including those sourcing from China, were to the steady flow of critical materials such as food, microchips and personal protective equipment.
China is responsible for around 30% of global manufacturing output, and dominates in almost all areas of production. “It produces the parts and materials that keep American factories moving,” Hong says. “The impact on supply chains is profound.”
While the end of China’s draconian lockdown policies has caused manufacturing in that country to return to some semblance of normality, geopolitical tensions continue to threaten the flow of product from that country. Hong says there’s a need for companies to reexamine their degree of connectivity with Chinese producers, as they strive to balance considerations of cost with the risk of single-sourcing.
Chief among traders’ concerns today is China’s poor human rights record, and how that affects the reputations of companies that are found to be sourcing product in regions where workers are oppressed and mistreated. But Hong says the decision to leave China for that reason is more complicated than it might seem. Chinese interests control some 93 ports in 53 countries around the world, so pulling production out of China doesn’t necessarily eliminate the reliance of global supply chains on that country’s interests. “Decoupling is really difficult to manage,” he says.
The most drastic scenario involves China making good on its threat to invade Taiwan, a move that would hugely disrupt trade and global supply chains. All companies can do is explore alternatives now, so as to be ready for any eventuality.
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