The Trump administration wants U.S. supply chain to leave China—but U.S. companies want to stay

With supply lines already entrenched in China, moving out isn't easy.

The Trump administration wants U.S. supply chain to leave China—but U.S. companies want to stay

At the start of the year, China looked like a bad place for manufacturers to be.

In late January, factories across the country shut down in order to contain the spread of COVID-19. In February, the manufacturing index, which measures factory output, plunged to a record low. U.S. companies with Chinese production lines issued earning warnings. Shortly after, pundits predicted more would leave China as the coronavirus proved that concentrating supply chains in China was a risk.

Recently, Washington’s eagerness to blame Beijing for the coronavirus pandemic has added intrigue to the idea that U.S. manufacturers will up and leave China, as politicians seek to hold China “accountable” for the outbreak that first emerged within its borders.

Reuters reports the Trump administration is contemplating deploying tax incentives and re-shoring subsidies to lure companies into relocating. An anonymous official says there is a “whole government push” on the initiative. But despite the pressure from public sentiment against China and the appeal of tax breaks, not many firms look ready to take the bait.

Good to be here

According to a survey from the American Chamber of Commerce in Shanghai last month, over 70% of U.S. companies operating in China had no plans to relocate production and supply chains. In fact, only 4% have plans to move manufacturing out of China—compared to roughly 20% of respondents to a similar survey last October.

Workers produce desks for export to the U.S., France, Germany and other countries, at a factory in Nantong in China’s eastern Jiangsu province on September 4, 2019. The coronavirus has reignited calls for U.S. manufacturers to exit China.
STR/AFP via Getty Images

In 2019, when the Trump administration’s trade war tariffs were biting hard, tech companies including Apple, Microsoft, Dell and Amazon all announced they would shift supply lines of U.S.-bound exports to other countries. Even then, however, few companies were planning to exit China altogether and instead opted for a “China plus one” strategy.

“China plus one was a tariff play,” said Trent Davies, a manager at professional services firm Dezan Shira in Ho Chi Minh, Vietnam. “Companies didn’t want to move all the way out of China, but they did want to change the country of origin on their products in order to avoid the tariffs. To do that you need to move a significant part of production to another country.”

Vietnam was the primary landing ground for U.S. manufacturers exiting China in order to skirt the trade war. The South Asian nation has seen a steady rise in low-tech manufacturing, such as textiles and toy-making, as China’s rising wages prompted companies to find cheaper labor.

Davies says that during the height of the pandemic, the majority of companies planning to exit China actually put their plans on hold. The outbreak created too much uncertainty. Next year, however, Davies expects there will be a resurgence of interest in Vietnam, as China-based manufacturers seek to mitigate the risk of another China shut down.  

Looking upstream

Mitigating risk might mean moving a portion of manufacturing out of China, but with China’s economy slowly reopening while much of the world remains in lockdown, the country is once again among the best locations for manufacturers to be.

“The notion that getting out of China is the answer is proven to be wrong. China has recovered quicker than anybody else,” said Olaf Schatteman, a partner at consultancy Bain & Company. Factories in China began opening up again in February, after two weeks of lockdown. By March the government was declaring a resumption rate above 90%, although that figure counted even a single returning employee as a ‘resumption.’

The real problem, Schatteman says, is that many companies concentrate their supply lines through single points in China, leaving them prone to failure. Auto parts manufacturers, for example, are heavily concentrated in Hubei province, where the outbreak began. In February, Hyundai had to close its assembly plant in South Korea because its component manufacturers in Hubei had temporarily closed.

So the answer is not to leave China, but to build flexibility into existing supply lines by nurturing alternative suppliers and, importantly, maintaining a macro view of issues affecting a supplier’s suppliers.

Drew Woodhouse—another partner at Bain & Company, who co-authored a report on supply chain resilience with Schatteman—calls “upstream visibility” the “holy grail of risk mitigation.” However, even in China—where most supply chains are comprehensive, running all the way from parts to finished products—gaining insight on the challenges facing your supplier’s suppliers is not easy.

Many Chinese component makers are small “mom and pop” shops that lack the technology to plug in to a comprehensive supply chain registry where they can share stock and sale data with other suppliers. Woodhouse says the disruption caused by the pandemic likely gave big manufacturers an impetus to invest more in upgrading the data collection capabilities of their smaller suppliers.

“What we need to build is more resilience at a single point of failure, you need an agile network with multiple points of supply and a good overview of problems affecting your suppliers,” Woodhouse said. According to the Bain report, published last week, maintaining a flexible supply chain expands output by up to 25% while “cutting costs and improving cash flow.” Olaf says “unit costs may go up but system costs go down.” Avoiding disruption improves overall efficiency so the real cost of manufacturing is reduced.

Those are costs that could be saved not just when the next disruption hits, but during more placid times too—whenever they may come.

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At home with travel photographer Gray Malin while releasing a new book from quarantine

His new book inspires curiosity in readers young and old, making it ideal to explore the world from right at home.

At home with travel photographer Gray Malin while releasing a new book from quarantine

Gray Malin is a celebrated fine art photographer, known for dreamy, eye-popping pictures from all corners of the world. Among his books are the New York Times bestsellers Beaches, Escape, and Italy.

Fortune recently spoke with Malin, who shared details about the inspiration for his new book published this week, A World of Opposites (Abrams), an unintentionally appropriate title for a work published while the world feels upside down.

This new book includes photography from Antarctica to Africa, with each spread featuring a pair of photos that are clear opposites. Shot with specifically kid readers in mind, the photos are meant to appeal to satisfy readers’ sense of imagination.

Gray Malin is an American fine art photographer, perhaps best known for his aerial beach photography. He inspects all of his poster prints sold from his Southern California studio before shipped.
Courtesy of Abrams Books

The following interview has been lightly edited and condensed for clarity.

Fortune: Your new photography book, A World of Opposites, is intended for children. How do you hope your photos inspire readers of all ages?

Malin: As soon as you open this book it is clear that all ages can enjoy the subject matter. The photos explore the far opposites of the world, and they are as beautiful as ever, spread across the pages of the book. I really wanted readers to focus on discovering a new perspective of the world and appreciating all it has to offer, which is something I think that we can all enjoy.

In turn, what inspired you to develop A World of Opposites? What was the planning and research process like, and where did you travel to shoot the artwork?

The collection of photographs shown in the book are all images from various fine-art series I have photographed over the past 10 years. I carefully curated the images for this book in order to serve the aesthetic, interactive, and educational purpose that I desired. I developed the book as a spin on the classic opposites books, wanting kids to enjoy this book not only in terms of learning their opposites but also for them to learn about the vastly different locations of the world as they enjoy the pictures.

There are very few photographic kids books in the marketplace—most are traditionally illustrated. And as photography becomes more and more prominent in children’s lives thanks to the smartphone, I believe A World of Opposites will be more special to young readers.

This new book includes Malin’s incredible photography from Antarctica to Africa; each spread features a pair of photos that are clear opposites.
Courtesy of Abrams Books

So many of your photographs and coffee table books inspire wanderlust. Normally, that would be a good thing. But while the pandemic continues and so many travel plans have to be put on hold indefinitely, travel photography might inspire mixed feelings. What would you hope your readers get out of your books right now?

I think this is exactly why we need travel books right now, especially for kids. I wanted this book to be educational and entertaining, allowing parents and children to experience learning about the world together. Most of my work centers around bringing destinations from all over the world into peoples home and whether they buy my art for nostalgic reasons, to inspire dreams and adventures for the future, or just merely because it is beautiful and different from any place they’ve seen before, I think it is important to continue showing people the world.

So much of your job and your work revolves around travel. What have you been working on while at home over the last several weeks? How are you keeping busy?

Honestly, I’ve really appreciated having this time to spend with my family. My twins are 17 months, and keep us laughing and running literally all day. While at home, I’ve also spent a lot of time thinking about ways to keep my brand relevant for our customers while they’re at home as well. This first manifested as fun ideas such as downloadable travel Zoom backgrounds, coloring pages, and dreamy phone backgrounds all available for free.

Following the successes of “Beaches” and “Escape,” Malin turned his unique eye to the coasts, beaches, and landscapes of Italy.
Courtesy of Abrams Books

However, my creative energy also has sparked a whole new world of video content. I started filming three weekly IGTV (Instagram Television) shows to try and interact with my audience in a new way. One show is called More Than a Photograph: The Stories of Gray Malin, and each 10-minute episode details the story of my career from the very beginning while also exposing the stories behind some of my most beloved images.

Another show is called How I Got the Shot, and each sixty second episode takes you behind the scenes to see that ultimately what you see in my photographs is real, not photoshop. The last show is a weekly invitation on Saturday morning into my home (or a part of my personal life) which I have not exposed before. I have found that this video content has really engaged my audience in a much deeper way, not only with my creative process, but also with my entrepreneurial journey. 

And one last question, going back to the bit about wanderlust: When shelter-in-place mandates are lifted and things shift back to normal, where do you want to travel first?

I find myself dreaming of South Africa. That will be high on my list.

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