Some are doing so because of rising tensions between Beijing and Washington, on everything from trade, technology and security to Taiwan.

The exodus of Chinese manufacturing

The differences threaten to unravel decades of economic integration. Washington now wants certain products to be manufactured in the U.S. and has imposed new restrictions on semiconductor exports to China. China also wants to rely more heavily on homegrown suppliers. The supply-chain snarls unleashed by the pandemic and disruptions caused by China’s Covid lockdowns further strained relations between the countries.

Investment by American companies in China was already slowing before the pandemic. U.S. firms invested $15.4 billion in 2012. Investment sank to just $8.4 billion last year.

It isn’t going to be easy for the U.S. to wean itself from China. That country’s share of U.S. imports has shrunk in recent years, mostly as a result of tariffs, but it remains significant. The value of goods taken in from China was 17% of all U.S. imports this year.

The turmoil of recent years was enough for some American executives to diversify their supply chain networks. Companies that make Crocs shoes, Yeti beer coolers, Roomba vacuums. Inter Parfums, and GoPro cameras were among the U.S. manufacturers that shifted production to countries outside of China as trade tensions mounted.

Shifting away from China presents numerous challenges, as companies expand into Vietnam, India, Cambodia, Mexico and Turkey. Each option has drawbacks. Cambodia and Vietnam are promising but far smaller in terms of capacity and population. Factories in Vietnam are already jam-packed and have limited available space. Turkey has gleaming, high-tech factories but is beset by rampant inflation, complicating the management of costs and pricing. India has huge potential but needs newer infrastructure, such as better roads. But none of these places can compete with China, says one long-time U.S. CEO with factories in China. He says he has toured factories in Vietnam, India and Mexico where assembly lines are poorly organized and easily automated tasks such as cutting and polishing sheets of metal are done by hand, limiting the speed of production.

discussion questions:

1. What are the arguments for leaving China?

2. What are the arguments for staying in China?

3. What are the economic and geopolitical reasons to this rethinking of the increased integration between the U.S. and Chinese trade relations? Discus.