Business exodus from China is increasing
Even before President-elect Donald Trump and his tariff-heavy agenda According to a new study, obtained by the White House, leading companies are already planning to move production out of China at a faster pace.
Based on a survey of 166 CEOs and COOs, Bain and Company found that the proportion of companies moving operations out of China increased to 69% in 2024 from 55% in 2022.
Where will they go? The top destination is the Indian subcontinent, with 39% of executives saying they are heading there. This was followed by 16% moving to the US or Canada, 11% to Southeast Asia, 10% to Western Europe and 8% to Latin America, rounding out the top 5 destinations.
Meanwhile, more and more companies are “reshoring” or “nearshore” operations to neighboring countries.
The survey conducted in July showed the percentage of company executives with plans bringing the supply chain closer to the market skyrocketing to 81% this year from 63% in 2022. That also includes the trend of “corporate splitting,” where there is a mix of production abroad and production close to home.
Why do companies move
Bain attributes this trend to growing geopolitical instability and rising costs. But for US companies, which made up 39% of the survey, the Disinflation Reduction Act of 2022 is another factor in repatriating operations.
One of President Joe Biden’s signature domestic policy achievements, the legislation provides incentives and tax credits in key areas like green energy technology. Another Biden initiative, the CHIPS Act, also encourages domestic semiconductor manufacturing.
There are certainly many issues that influence a company’s supply chain decisions. Bain’s 2022 survey found that geopolitics, including tariffs, regulations and inflation, are the top concerns. But working conditions, climate and environmental characteristics as well as disaster risks such as natural disasters, terrorism and health threats are also top concerns.
The danger of relying too much on Chinese factories became clear when Trump imposed tariffs on Beijing during his first term as part of his “America First” economic policy. Supply chain disruptions during the pandemic have also highlighted the need for further diversification.
Biden then left Trump’s tariffs on Chinese goods in place, imposing restrictions on US investment in China and encouraging more domestic production. And in his second term, Trump announced he would increase taxes across the board, including tougher tariffs on China.
Trump’s tariffs and the Chinese economy
Higher US tariffs on China could deal another heavy blow to the world’s second-largest economy, which has been hit hard by a real estate collapse, debt and even pockets. money. deflation.
That’s because exports are one of China’s key economic drivers, although Beijing’s mass stimulus measures have shown some signs of weakening. promote domestic consumption.
However, the wave of cheap exports that China sends around the world has prompted other countries to impose more trade barriers on Beijing.
Meanwhile, foreign investment in China was in a three-year recession that lasted last quarter. Despite China’s efforts to revive growth, foreign investment still dropped by $13 billion in the first nine months of the year.
