The U.S. relies heavily on China for production needs, and in recent years, there’s been a growing concern over their decreasing workforce. As the workforce dwindles, so does the reliability of supply chain related activities in the country. In an effort to mitigate risk of increasing delays, production expense, and efficiency, the U.S. is actively working to delegate production needs to other countries.
Shifting Supply Chain Activity Away from China
The U.S. is currently replacing the “China plus one” sourcing model to put focus on Southeast Asia and South Asia with additional near-sourcing from Latin America. Along with these shifts, more production is also being moved to the U.S. These changes aren’t just happening in the U.S. though – markets such as Vietnam and Thailand are also investing in domestic production and logistics solutions to move away from their reliance on Chinese markets amidst the rising labor costs and decreasing workforce.
The issue is, there’s no “quick fix” model to replacing reliance on Chinese production. The capacity to handle the amount of supply chain related activities – both manufacturing and transportation – that China handles simply does not exist elsewhere. At least not in one single country. China has methodically built up their global trade and supply chain model over decades, and countries who are attempting to move away from utilizing China as their primary supplier are needing to go back to the drawing board to devise a custom global sourcing strategy that stretches across several different countries and markets.
These custom solutions will have to be developed according to each company’s individual needs. Retailers who are importing low-cost items are moving towards sourcing from southeast Asia and India, whereas the U.S. automotive industry is moving towards collaborations with Mexico for the manufacture of electrical components. Essentially, there is no prepackaged “solution” for the move away from a Chinese-focused sourcing model, and over the course of the next couple years, we expect to see more countries making an attempt to shift their strategies and international trade reliance.
Slowed Economic Growth
This year, a downturn in U.S. imports is expected by retailers and industry experts, and retailers will face challenges related to consumer demand. Much of this can be attributed to increased inflation, high interest rates, and labor and material shortages in several industries. Many of the sourcing uncertainties are also related to Chinese activity as they recover from years of lockdowns due to COVID-19 regulations and policies.
The U.S. GDP is expected to remain rather stagnant over the next year, with growth of only 0.5% throughout 2023. The Federal Reserve Bank is focused primarily on reducing inflation to 2%, and while they have reduced inflation a bit by increasing interest rates, their preferred 2% goal is not expected to be met until 2024.