The U.S. government has repeatedly called for the "return of manufacturing to the United States", but in fact this is tantamount to seeking fish.

In February 2021, US President Biden signed an executive order to review the supply chain of four key projects: pharmaceuticals, important minerals, semiconductors, and high-capacity batteries. Biden said that the executive order is designed to solve the fragility of the supply chain in key sectors of the US economy and enable Americans to rely on their own industries to survive all crises.

The Nikkei News reported that Biden’s remarks showed that politicians are no less ignorant of the supply chain than ordinary citizens. The global supply chain is extremely complex. Judging from the current international trade situation, it is unrealistic to realize the return of the entire manufacturing industry through an administrative order.

The report pointed out that the Biden administration is interested in restructuring the supply chain because it wants to end the manufacturing industry’s dependence on China as soon as possible. Especially in the high-tech field, China may be more competitive, and this may affect the economic recovery of the United States. In addition, China's influence in the field of network technology will also cast a shadow over the future national security and national defense of the United States.

But it must be admitted that the US supply chain is flowing to China. The United States is very dependent on China. This means that returning manufacturing to the United States is a much more complicated matter than the Biden administration thought. For example, the impact of government procurement, supply chain reconstruction, manufacturing base costs, and international trade policies triggered by the return of manufacturing to the country are unpredictable.

There are indeed many problems in the return of manufacturing to the United States. According to one manufacturer, when deciding to outsource business to a company in a low-cost country, it is necessary to select suppliers (parts companies, etc.), review, establish business, quality inspection, and expand production capacity. According to him, it will take at least five years to make relevant plans.

With the establishment of a supply chain in Asia, the head of a company's procurement believes that the supply chain will never return to Europe and the United States.

The report pointed out that most of the world's medical devices are produced by Chinese manufacturers. If a manufacturing base that is comparable to China in terms of competitiveness, quality, and scale is to be established, the cost will be much higher than the tariffs currently paid by American companies for imports from China.

Therefore, instead of forcing the manufacturing industry to return immediately, it is better to seek a supply chain design and a solution to reduce the single risk of supply. In this regard, Nikkei made four suggestions.

1. It is difficult to return and geopolitical risks are high, and adopt a strategy of "forbearance".

Due to transportation costs, tariffs, supply interruption risks, and labor costs, the cost of sourcing products from overseas suppliers is soaring, and the topic of supply chain return caused by this continues to be heated. Especially during the pandemic, the supply of vital materials such as ventilators was interrupted, and people became more aware of the necessity of returning production to the country. However, in the field where suppliers have taken root, it is not easy to overcome economic conditions, so the strategy of maintaining the status quo has to be adopted.

In addition, in some industries, supply chain reconstruction is very difficult. For example, the manufacturing and assembly of parts and components in the electronics industry are concentrated in Asia. Therefore, it is best for companies to make the supply chain flexible and reserve inventory in different regions to deal with emergencies.

Second, the difficulty of returning is small and the geopolitical risk is high, and the strategy of "increasing options" is adopted.

Whether it is from the supply chain logic that prioritizes avoiding uncertainty and risk, or from the perspective of being close to customers and greatly reducing the total transportation cost, the trend of manufacturing returning to China is reasonable. Especially the varieties with large volume and small profit margins. To avoid incurring transportation costs, it is reasonable to produce near the place of consumption.

This is also a good opportunity to utilize the understanding of the local market, increase domestic procurement and promote economic growth. For example, mobile phone manufacturers in India and China are oriented to the local market and source products from the domestic supply chain to increase market share.

3. The difficulty of returning and the low geopolitical risk are "tactical responses."

Since the outbreak of the new crown epidemic, people have realized the importance of securing medicines, medical supplies, health supplies, precision instruments, etc. Import tariffs may be reduced. In addition, the possibility of rapid expansion of domestic production such as cheap medical supplies in developed countries is very low. For such products, the current geopolitical risks are not significant, so it is difficult to justify the cost of returning to domestic production. Companies are best to take tactical short-term countermeasures, such as avoiding tariffs, increasing inventory in regional distribution bases, and stocking domestically.

In addition, the manufacturing, heavy industry, and oil and gas industries should also start looking for domestic suppliers of high-performance components. Even if the cost is high, in order to avoid the risk of supply interruption, a backup source of supply should be ensured.

Fourth, the difficulty of returning is low, and the geopolitical risk is low, that is, "transfer to domestic procurement".

For items that are easily affected by cultural differences, as well as items that can ensure the supply of goods in the country, the return of the supply chain to the country will become the mainstream. If consumer demand for domestic products increases, such products are expected to grow. For example, fresh food, advanced drugs (gene therapy, etc.) and advanced medical supplies (ventilators, etc.). In addition, for the apparel industry, domestic layout is also an important condition in meeting consumer demand.

Nikkei believes that the global supply chain is expected to develop in the above direction within the next five years. The real turbulent times may be approaching.