The pandemic will reverse globalization by accelerating a move toward regional supply chains. The outcome will be an Asian supply chain network that is both less China-focused and more diverse.

Businesses are moving out of China, once crowned as the “global factory,” and the reason is not just the COVID-19, of course it has added momentum to the departure, but economists cite to more strong reasons being the Sino-U.S. trade war and rising wages in China have already incentivized some corporations to relocate supply chains to other parts of Asia.

There have been several anecdotal reports over the past few years of Chinese manufacturers outsourcing some aspects of their production, mainly to North Vietnam. Manufacturing in coastal China is significantly more expensive than it was a decade or two ago, and with additional logistics challenges and costs associated with manufacturing in the deeper west of the country, that is not always a good option.

Global trade is reshaping and the pandemic is playing an active role in the process as companies look to reduce their dependence on Chinese manufacturing, economists observe. The Economist Intelligence Unit (EIU) says the pandemic will reverse globalization by accelerating a move toward regional supply chains.

Well it’s not just EIU, but many others who have noted the trend. Gartner Inc ran a “Weathering the Supply Chain Storm” global survey during February and March 2020, soliciting feedback from 260 participants who are responsible for supply chains and related functions, covering a range of different industries. One of the key findings from this survey was that 33% of respondents said that they had either already relocated manufacturing activities out from China or planned to do so within the next two to three years. Here it should be noted that those who implied a shift out, might not have meant in totality.

China’s dominance in international trade has grown ever since the country was accepted into the WTO in 2001. This event was credited by the EIU as sparking the latest wave of globalization, as multinationals took advantage of production and demand opportunities in the country. However, as a result of Covid-19, it is likely that this period of globalization will not only come to a halt, it will reverse. Read more here

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