The effects of the coronavirus on the Chinese economy will undoubtedly be strong, as the country is basically operating at half capacity right now. But the effects in the future could be even stronger, as numerous companies will begin moving production out of China. The coronavirus will exacerbate a movement that already began as a reaction to tariffs on Chinese goods.
For years, many multinational corporations shifted much of their production to China, lured by the country’s low labor costs and relatively lax labor and environmental regulations. But with the onset of the coronavirus, and the quarantines that have come about as a reaction to the virus, many factories have had to shut down. That exposes the weakness of a business strategy that relies solely on Chinese production.
Now companies are beginning to shift production to other countries in Southeast Asia. Google and Microsoft, for instance, are beginning to move production to Thailand and Vietnam. Apple produces most of its goods in China, so it will have difficulty moving elsewhere. But even companies moving to other Asian countries are going to face difficulties because most of the components for the goods they produce come from China. And with so many plants in China shuttered or operating at well below full strength, it will take a while for parts inventories to build back up.
We can expect that in the future more multinational corporations will begin to diversify their production and start sourcing away from China. The coronavirus has exposed the folly of putting all their eggs in one basket and relying solely on China for production. Those corporations should have known better already, but now they’re definitely learning a very important and expensive lesson.
American consumers will benefit from the coming diversification of production too, as now we no longer have to worry about our hard-earned dollars going to fund Communist politicians using slave labor to produce our goods. And China will learn a very important lesson that its position as the world’s industrial production center will remain in jeopardy as long as it fails to provide certainty surrounding its business and production climate.
This article was originally posted on Red Tea News.
