Being grounded in research and in data analytics, our research activity constantly reviews various data. Specifically, we probe to ascertain if industry supply chains are actively implementing supply network resiliency strategies, including an adoption of a China plus sourcing strategy.

What recently caught our attention was a report from The Wall Street Journal, U.S. Tariffs Drive Drop in Chinese Imports. (Paid subscription or metered view)

This report reviewed recent U.S. government data along with analysis conducted by Trade Data Monitor on imports and tariffs collected in 2020 and thus far in 2021.

Supply Chain Matters Global Supply Chain Assessment

The premise of the report’s analysis is that rather than the shock of the COVID-19 pandemic, the prior trade conflict among the U.S. and China has likely motivated some industry supply chain teams to change their prior sourcing of supply primarily from China.

The analysis indicates that nearly two-thirds of all U.S. imports from China, roughly $370 billion, were previously subject to inbound tariffs imposed by the U.S. in 2018 and 2019.

Data analyzed reportedly indicates that about $250 billion in goods annually is now subject to tariffs with the premise that companies are buying more telecom equipment, computer accessories, smartphones, furniture and other goods from other countries. The reinforcing data is reportedly that U.S. overall imports from China were $472 billion for the 12 months ending in March 2021, compared to a peak of $539 billion in 2018. Other data reported was that the U.S. Treasury collected $66 billion from tariffs in the 12 months ending in March 2021. That was down from a peak of $76 billion recorded in February 2020.

The report further indicates that while the goal of the prior Trump Administration’s imposed tariffs was to foster more U.S. nearshoring of manufacturing, the data would indicate the opposite effect, industry supply chains turning to other countries in Asia, particularly Vietnam. The report further mentions Mexico as closing in on China’s lead as the largest source of U.S. imports.  That statement may be a bit misleading since the bulk of U.S. imports from Mexico has more to do with USMCA material and inventory flows, where intermediate and semi-finished goods flow among Mexico, Canada and the U.S. borders. From our lens, that would be more a reflection of a continued regional near shoring effort.

Our readers may have come across other data published by ISM or other sourcing procurement providers that would indicate that industry supply chains have not significantly changed their sourcing of components of finished goods with China. COVID and now the surging post-COVID product demand have industry supply chains wedded to Chinese suppliers, because of desperation for continuing supply.

What we suspect based on procurement technology sourcing data and user surveys is that supply management teams are continuing to seek out lowest cost supply, which would explain the influence of added import tariffs. Again, from our lens, that is not what supply chain resilience strategy represents, namely strategic alternative supply of key components or finished goods.

Whether global materials and good sourcing shifts are being driven by a continued focus on lower cost, an overall resiliency strategy, or elements of both, may well become clearer over the coming weeks. The reasons are threefold.

A rapidly spreading new variant of the COVID-19 coronavirus is now impacting Vietnam’s northern provinces, where key suppliers of high tech, smartphone and electronics suppliers are located. The country continues to fall behind in obtaining vaccine supply and in vaccinating populations. The government is reportedly taking measures to house and confine factory workers within industrial complexes, but small and medium sized component manufacturers are reportedly more impacted. Meanwhile, India’s ongoing unchecked pandemic outbreak is straining production and supply chain activity. Taiwan’s latest May PMI data indicates capacity is extremely constrained at this point.

Meanwhile The Wall Street Journal reported today that with soaring raw material and commodity prices and an ongoing shortage of workers, smaller Chinese manufacturers are refusing to accept new orders or our even considering temporary shutdown of operations. The rise in inbound costs and the effects of disruption are so severe that reportedly smaller suppliers cannot raise prices to make up for their continued losses.

Further, one of the world’s busiest ports serving China’s Shenzhen manufacturing province is currently being impacted by a local virus outbreak. According to a Bloomberg report this weekend, Yantian Port has temporarily stopped accepting containers for export after an outbreak among port workers and the broader community. Reportedly this port processes about 100 ships per week. Some shipping lines such as AP Moeller Maersk are already issuing delays in schedules because of the port’s virus disruption. How long and the extent or significance of this disruption remains to be seen.

Meanwhile, one indicator of the recent May U.S. production output data indicates stronger expansion of output. The May IHS Markit U.S. Manufacturing PMI hit a new high for the second month running, reportedly surging to a rate unsurpassed in 14 years of survey data, buoyed by both domestic and export demand.

 

In summary, data as to whether industry supply management actions are pursuing an avoidance of tariffs and lower cost, or whether the experience of the pandemic has triggered meaningful supply network or China Plus resiliency sourcing remains conflicting.

At some point, clearer more definitive data may come forth. In the meantime, the supply management focus remains highly active in having to manage and overcome a series of perhaps conflicting needs.

 

Bob Ferrari

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