Reshoring Is Real

Supply chains are realigning, to China's dismay.

“Digging to China” is a classic parental joke in America. Any kid with a shovel in their hand in the yard has probably been told that if they dug a hole and kept going, they would eventually reach China. The phrase was often featured in cartoons where characters actually dug their way to an Asian country. In the book Walden, Henry David Thoreau wrote that “there was a crazy fellow once in this town who undertook to dig through to China, and he got so far that, as he said, he heard the Chinese pots and kettles rattle.”

One doesn’t have to dig that deep to see how rattled the Chinese economy is today. A month ago, Carl highlighted how China’s reopening surge had hit the wall. Economic woes have only piled up since.

A couple of years ago, firms and governments expressed intentions of changing supply chains in the wake of pandemic-related disruptions. But many believed that the process would be slow, as companies would give precedence to profits over geopolitics. The hard data suggests corporations are not only acting on these intentions but moving quite swiftly indeed.

Recent trade data shows that China’s status as the world’s largest exporter, which was further enhanced during the pandemic, is now under threat. China’s exports fell for the third month in a row in July. The 14.5% year-over-year contraction was the biggest drop in more than three years, with declines among most of its major trade partners. Shipments to the U.S. fell for the twelfth consecutive month. Exports to both the European Union (EU) and to the Association of Southeast Asian Nations declined by 21% during the year.

China Exports and Industrial Production