Breaking Away from the World’s Factory

For the first time in manufacturing history, a pandemic beat the heck out of demand, supply and labor in nearly every country on Earth — all at the same time.

For decades, supply chains moved abroad, with a significant portion of imports made in China.

Mass manufacturing in the “world’s factory” severely eroded U.S. domestic capabilities, exposing the country to serious risk …

… precisely at a turning point for America’s economy.

You see, last April, the Kearney Reshoring Index showed a “dramatic reversal” for U.S. companies — the most favorable in five years …

… as domestic manufacturing controlled a significantly higher share compared to Asian exporters. Manufactured products from China were the hardest hit.

And that was for 2019 … before COVID-19.

Patrick Van den Bossche, Kearney partner and co-author of the 19-page report, says this …

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.

Ongoing political anger towards China — not to mention future pandemics (the first SARS also came from China … in 2002-03) — means that companies will want to hedge their supply chains by spreading the risk. 

And now, President Biden is proposing a tax penalty on offshore manufacturing. It would put a 28% corporate tax rate and 10% offshoring penalty tax on U.S. goods and services produced overseas.

This is part of Biden’s “Made in All of America” plan to bring manufacturing jobs back to the U.S. and encourage purchases of U.S.-made products.

The future is hard to predict. But this could mean China’s days as the go-to manufacturing hub for the Western world are kaput.

Indeed, China’s role as the world’s factory may be changing anyway. Many companies — like Samsung, Hasbro, Inc. (Nasdaq: HAS), Nintendo and GoPro, Inc. (Nasdaq: GPRO) — are moving facilities out of China. 

And that includes one well-known U.S. consumer behemoth …

… even though none of the products the company quietly released experienced any significant hiccups in the spring of 2020, when a lot of other companies were gasping for air.

In fact, this company looks more robust than ever.

More than one of its suppliers is shifting operations outside of China … boosting their manufacturing in places like India, Vietnam, Taiwan, Indonesia and Mexico.

A diversified supply chain should help avoid disruptions that can too easily arise from concentrating production in one country.

It’s a good idea to use any pullbacks to go long on this highly-rated legacy stock, which I name in my special report, “American Heroes: Make Money by Fighting Back” …

… and which you can access as a Wealth Megatrends subscriber.

All the best,

Sean

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One comment on “Breaking Away from the World’s Factory

  1. BARBARA HANSEN February 9, 2021

    Unsubscribe, please.

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