Companies are already looking for alternatives to China—but moving complex supply chains isn't easy
Share to twitterPresident Trump has “ordered” American companies to immediately start looking for an alternative to China. Most companies that I have talked to are long past debating that question – they have already decided that the trade war is a long-term problem and they have to diversify their manufacturing bases out of China. The problem is moving their supply chains.
We typically think of suppliers in “tiers.” My tier 1 suppliers provide me with major components and subsystems; my suppliers’ tier 1s in turn feed them, and so on. It is not at all unusual to have five or six tiers or even more. The challenge with this tiering is that it is very hard to keep track of all the tier 3s, tier 4s, and lower down.
Back in those days, if you engaged in this kind of manufacturing in China, you were not allowed to ship product into the Chinese market unless you paid import duties and various taxes. But in a clever move, the Chinese government ruled that if you had greater than 50% local content, you could import into what was then a nascent but fast-growing consumer market. So companies scrambled to find local suppliers.
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