Companies plan to continue shifting supply chains out of China under Biden or Trump, says PwC exec

Date: Monday, October 26, 2020
Source: CNBC

Companies plan to continue shifting supply chains out of China, regardless of who wins the Nov. 3 presidential election, according to Tim Ryan, the chair of PwC U.S.

The issue came into focus in response to President Donald Trump’s trade war with China, but it only gained importance across corporate America due to the coronavirus pandemic, Ryan said in a “Closing Bell” interview, drawing on findings from a recent survey conducted by the powerhouse accounting firm.

“Covid really put a spotlight ... on supply chain risk, and one of the things that we’re seeing is supply chain derisking has moved all the way up to the boardroom level, as we see now concentrations in our supply chains that was maybe not evidenced before,” Ryan said.

The beneficiaries of exits from China, home to the world’s second-largest economy, are likely to be countries in Southeast Asia, Mexico and the United States, according to Ryan.

In PwC’s survey of 578 U.S. executives, released last month, there was traction for policies to boost American manufacturing. Approximately 46% of respondents said they “strongly agree” that the government should ramp up U.S. production of essential products to aid the nation’s economy.

The production of medical equipment and pharmaceutical supplies outside the U.S., in particular, has seen renewed scrutiny during the pandemic, as factories across the globe have shuttered and supply shortages have arisen. The combination of the trade war and pandemic showed that retailers also had relied “too much” on production in China, former Macy’s CEO Terry Lundgren told CNBC earlier this year.

Trump’s trade war with China resulted in each side placing billions of dollars worth of tariffs on the other’s goods and motivated some companies to begin relocating their supply chains elsewhere. Indeed, Trump has repeatedly called on businesses to do just that.

Some efforts to move production to new countries have been inhibited by the global health crisis. That’s the case for the maker of Roomba robot vacuum cleaner, which is shifting production to Malaysia to avoid the tariffs.

“We were hoping to get it done by the end of this year,” iRobot CEO Colin Angle said Wednesday on “Closing Bell.” “Unfortunately, the pandemic has slowed down our ability to move into Malaysia, so that’s going to move into [2021] before we get it done.”

Ryan said PwC’s survey found slightly more executives were worried about trade tensions with China under Trump, compared with under Biden. However, almost 30% of respondents said they “strongly agree” that trade restrictions on China will be intensified no matter who wins.

Biden, the former vice president under President Barack Obama, currently leads Trump by 7.9 percentage points in an average of national polls compiled by RealClearPolitics.

“I see the China-U.S. relationship still being very important. It’s a major market, and so we do see investment there,” said Ryan. “But on a relative basis, we’re seeing U.S. companies planning to spread that out more, and that’s a trend that’s been underway for the last couple years that we expect to continue.”

Another finding from PwC’s survey is that regardless of the election outcome, 70% of business leaders expect corporate taxes to increase to help pay for the trillions of dollars in coronavirus stimulus. Trump’s signature tax law lowered the rate from 35% to 21%. Biden has called for it to be raised to 28%.

“One of the careful things we have to balance here, we clearly have a need to make sure we pay for the stimulus. We clearly have a need to make sure we don’t leave people behind, but in the same token, we can’t lose the competitiveness of U.S. businesses because that does mean jobs,” Ryan said.

[Read from the original source.]