Companies are moving manufacturing from China to Mexico not the United States
by Brian Young
May 04, 2020
Trump’s trade war with China was supposed to result in manufacturing jobs being brought back to the United States. Instead, it led to China shutting down much of its trade with the US, leaving companies scrambling to meet demand, and failed to create jobs in the United States.
While some manufacturing has moved out of China in the past year, it is not coming back to the United States. The seventh annual Kearney US Reshoring Index found that in 2019 the US had a 17% decline in goods that were manufactured in China, with no rise in goods made in the United States. Instead, that money was spent in Vietnam and Mexico.
Kearney says that US trade policy is to blame for the change.
“Three decades ago, U.S. producers began manufacturing and sourcing in China for one reason: costs. The trade war brought a second dimension more fully into the equation―risk―as tariffs and the threat of disrupted China imports prompted companies to weigh surety of supply more fully alongside costs. COVID-19 brings a third dimension more fully into the mix, and arguably to the fore: resilience―the ability to foresee and adapt to unforeseen systemic shocks,” says Patrick Van den Bossche, Kearney partner and co-author of the 19-page report.
Mexico may have also seen a large increase in manufacturing dollars thanks to the recently signed USMCA. Trump’s free trade deal replaced NAFTA and encouraged more trade between the United States and Mexico. Of course, it is much cheaper to manufacture things in Mexico and transport them across the border than to make them in the US or ship them across the ocean. On average a manufacturing worker in Mexico makes $2.30 an hour, and in China, they make about $3.60 an hour. In the US the average is $20.80 an hour.
The goal of Trump’s trade war was supposed to be to even the playing field for American companies and their workers, yet all it seems to have done is to move manufacturing to other lower-wage countries.
The failure of Trump’s trade war is now being felt on supply chains that have dried up due to the COVID-19 pandemic. Companies and governments are starting to see the problem with having everything manufactured thousands of miles away. It makes it very hard to import tens of thousands of masks or ventilators when they need to be put on a ship and travel across the Pacific, or when a government can order that companies stop exporting products to other countries.
“The current crisis is exposing vulnerabilities that cannot be addressed with short-term fixes and minor tinkering,” Levering adds. “Companies can build more resilience into their supply chains by ensuring they can nimbly sense and pivot in response to unexpected demands and disruptions. This is the key to providing customers the products they need, particularly during times of crisis.”
Once again, Trump’s failed leadership has failed the American worker and the American people.