Spy balloon tensions between US and China drift into supply chain politics

Tensions between the United States and China over alleged spy balloons shot down over North America are prompting some of the major trade associations representing companies dependent on Chinese manufacturing to urge their members to diversify their supply chains. supply.

The National Retail Federation, the American Footwear and Apparel Association and the Council of Supply Chain Management Professionals told CNBC that rising tensions with China over spy balloons have raised new concerns from their member companies, already faced with customs tariffs in recent years. imposed by President Donald Trump and President Joe Biden, and Covid shutdowns under the “Zero Covid” policy.

“Ongoing tensions with the U.S.-China trade relationship continue to underscore the need for supply chain diversification,” said Jon Gold, vice president of supply chain and policy. customs of the National Retail Federation. “From tariffs to Covid-19 to additional challenges, retailers are looking for opportunities to diversify their sourcing to ensure they have resilient supply chains to meet consumer needs.”

Mark Baxa, president and CEO of the Council of Supply Chain Management Professionals, told CNBC that members of the trade group have been pursuing layoffs in their supply chain since the tariffs began to offset the risk of lingering tensions in matters of trade policy.

The latest data shows a significant shift in manufacturing to countries like Vietnam and the Philippines. Many companies are also looking at the revised NAFTA agreement, UMSCA, as a way to bring more manufacturing back to North America.

“We’ve seen an accelerating pace where members are looking for capabilities in the context of the benefits offered by the USMCA agreement,” Baxa said. “Supply chain leaders are looking for lower risk and a better way to serve the United States by seeking and relocating to Canada and Mexico. Other relocation actions we see others taking are alternative countries like the EU, Vietnam, South Korea, and India. Some are bringing the work right here to the United States”

These changes are not made lightly, Baxa said, with a number of key criteria on the list of what supply chain managers look at when evaluating a manufacturing geographic shift. Availability of technology and a skilled workforce, infrastructure, reliability and quality are the main “must-haves”, he said.

Steve Lamar, CEO of the American Apparel and Footwear Association, said the bar for leaving China was high as the country remains an important trading partner for a variety of reasons, from access to materials and products to skills. While the new tensions reinforce the reasons to consider diversifying the supply chain, he does not think they will accelerate migration.

“I don’t think the events of the past week are accelerating trends, which have been ongoing for some time and are only moving as fast as policies, skills, abilities, materials, etc. allow” , Lamar said. “Instead, they may have put an exclamation mark on it, reminding people of the geopolitical tensions that are already evident.”

The biggest example of all when it comes to manufacturing risk in China is the biggest company in the market, Apple, which in recent years has started moving some manufacturing, including to India. But the “stumbling blocks” that may result from these efforts have become evident in quality issues with India-based Apple’s initial manufacturing, according to a new report from the FT.

Another reason for the reluctance to leave China is direct consumer access.

“Selling in the Chinese market requires some local presence,” Lamar said.

The ongoing challenge amid multiple crises, Gold said, is time.

“It takes time to diversify your supply chain,” he said. “You need to ensure that new suppliers can meet all retailer requirements and all legally required testing, as well as ensure that the right manpower and logistics exist to meet those needs.”