Coronavirus pressures US manufacturers to bring plants home from China

The COVID-19 pandemic has America rethinking its reliance on China for not only key medical supplies but production capacity in general after Beijing clamped down on exports of critical items used to combat the disease.

China is the world’s largest producer of masks, test kits and other medical equipment needed to control the spread of COVID-19, and the shipping restrictions sparked outrage in the U.S., which leads the world in reported infections with more than 706,000 cases.

“One of the things that has happened with this pandemic is it's revealed to everybody the limits to our digital superiority and our software and all the things that we've innovated in technology,” Sen. Marco Rubio, R-Fla., told FOX Business’ Maria Bartiromo. “You still have to be able to make things. You still have to have industry and industrial capacity as a country. And we've given a lot of it away.”

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Indeed, only about 11 percent of U.S. gross domestic product comes from manufacturing today, down from almost 40 percent in 1945.

As the U.S. has lost its place as the world’s leading producer over the past 25 or 30 years, China has emerged as the go-to place for manufacturing due to its ability to “create economies of scale in relatively small geographies,” Charles Freeman, senior vice president for Asia at the U.S. Chamber of Commerce, told FOX Business.

Although cheaper Chinese labor remains a factor in companies’ decisions to make their products in that country, it’s not the advantage it once was, Freeman said. Instead, China lures companies with tax breaks and other incentives, as well as the appeal of its domestic market.

Domestic spending in China accounts for about 60 percent of the country’s GDP, which totaled $14.3 trillion in 2019, making it a difficult decision for U.S. companies to uproot their supply chains from the country.

While disruptions and shortages caused by the COVID-19 pandemic have brought the issue of America’s reliance on Chinese production to the forefront, “every company” was already “making calculations about how smart it is to rely on one market for supplies,” Freeman said.

President Trump has repeatedly called on U.S. companies to bring their operations back home, moves that would likely provide a spark to a labor force that has over the past four weeks seen 22 million workers lose their jobs, at least temporarily.

Freeman said that while a number of companies have already moved, or made efforts to move, there are others that have “huge sunk costs in the market” and are unable to relocate in “any reasonable time.”

He believes the COVID-19 experience will cause many companies to "rethink the safety and security of reliance on global markets," and that there will inevitably be some movement of capital-intensive -- not labor intensive -- production back to the U.S. 

To get companies to return, Freeman says, Trump should incentivize domestic production instead of penalizing output in markets like China.

The U.S. Chamber of Commerce "supports a robust commercial relationship with China," he added, but also understands the "need for some rethinking of that relationship.

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Rubio agrees. He told Bartiromo that the current level of U.S. dependence on China's industrial capacity has put our country "in a very dangerous situation.”

“I hope that one of the things that will come about now is a broad consensus in this country that we have to be able to make things in the United States," he said.