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Home » China and U.S. face “reckoning” over trade disruptions in 2021

China and U.S. face “reckoning” over trade disruptions in 2021

Supply chain law firm forecasts rise in re-shoring, automation as businesses look to trim dependency on manufacturing powerhouse.

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January 18, 2021
Ben Ames
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Supply chain managers are accustomed to navigating the annual supply disruption following Asia’s pending Lunar New Year celebration, but a range of factors in 2021 could make China’s logistics policies even harder to predict than usual, an international trade expert is warning.

The challenge arrives after events in 2020 roiled typical trade patterns with the manufacturing powerhouse nation, led by Trump Administration tariffs on Chinese imports that that boosted prices for U.S. consumers and triggered rounds of retaliatory tariffs on U.S. exports. Large as those impacts were, the second half of 2020 soon overshadowed them as the global pandemic shut down factories, shuttered businesses, and canceled air and ocean trade long taken for granted.

Many of those details are on track to change under the new policies endorsed by the incoming Biden Administration, but certain snarls such as international shipping container shortages could take months to unravel even as many companies are gasping under the continued pressure of coronavirus lockdowns.

Now the process of reestablishing import and export routes with China will be paused once more with the beginning on Feb. 12 of Chinese New Year celebrations, which are typically marked by a two-week holiday, a massive surge of domestic travel, and a virtual shutdown of business activity throughout the nation.

But besides turning a calendar page from the Year of the Rat to the year of the Ox, China is mired in layers of other challenges that could foil companies’ efforts to forecast future business conditions, according to Sarah Rathke, a partner at the international law firm Squire Patton Boggs LLP, who runs the firm’s U.S. supply chain practice. Taken together, those factors could force a “reckoning” of dueling priorities between the U.S. and China in 2021, she said.

At home, China is facing domestic political struggles amid continuing efforts by the ruling Han ethnic group to bring large Uighur and Tibetan minorities under tighter cultural control. While such domestic issues may appear to be on the periphery of supply chain policies, they still put growing pressure on the nation’s leaders, since the two massive autonomous regions cover about half of China’s total geographical footprint. Party leaders who are “trying to run a social and economic revolution without a political one” could lose some of their famously tight control over the population.

And on the international stage, the country is set to continue its adversarial relationship with the U.S. over issues like the lack of firm legal protections for physical property, intellectual property (IP), and contractual rights in China, Rathke said. That lack of sufficient legal guarantees means that western nations may even risk having Chinese trading partners abandon manufacturing contracts if spikes in demand require them to distribute their products purely domestically, said Rathke, who also writes the firm’s global supply chain law blog.

Together, those combined issues make it harder to predict Chinese policies in 2021 than in past years, but U.S. companies remain dependent on the nation as the sole supplier of certain goods made nowhere else, such as technology components like LED computer and television screens, she said.

In response, some businesses are trying to shift production and procurement to other nations such as Taiwan and Vietnam in a “China Plus One” strategy, but experts say those smaller nations often lack sufficient logistics infrastructure, such as deep water ports, rail networks, and warehouses.

They also simply don’t have the manpower to replace China’s vast labor force, which includes four times the U.S. population in a land mass about the same size. Instead, a more likely solution would be for U.S. companies to replace their Chinese trade routes through “re-shoring”—the relocation of foreign supply chain facilities back to the U.S.—and increased investments in automation, Rathke said.

KEYWORDS Squire Patton Boggs
Benames
Ben Ames has spent 20 years as a journalist since starting out as a daily newspaper reporter in Pennsylvania in 1995. From 1999 forward, he has focused on business and technology reporting for a number of trade journals, beginning when he joined Design News and Modern Materials Handling magazines. Ames is author of the trail guide "Hiking Massachusetts" and is a graduate of the Columbia School of Journalism.

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