The COVID-19 Silver Lining: Domestic Manufacturing is Up
Coronavirus has upended global supply chains, causing everything from mass factory closings in China to the shutdown of entire countries in Europe. With global supply chains crippled, there’s a dark cloud looming over economic markets. But that cloud has a silver lining: Domestic manufacturing is up. When they can’t bring it in, many sellers are looking nearby for producers who can keep them flush with product.
Chinese Manufacturing Plants
China has been the production powerhouse of the world for the better part of two decades. In that time, America has transitioned from a producer-first economy, to a consumer-heavy one. For manufacturing, this has meant some headwinds — namely a skills gap, rising cost of production, and costly supply chains. All because China can produce comparable quality goods quicker and at a lower price.
But COVID-19 is driving mass factory closures in China, albeit temporary ones. Quicker goods at lower prices means very little when there’s no production. And even despite the small gap of time since COVID-19 crippled China’s production capabilities, domestic manufacturers have stepped up in a big way. Demand has followed them.
Factors pushing domestic manufacturing
While China’s recent downturn has become the U.S.’ opportunity, it’s not the only factor spiking domestic manufacturing. A timely rate cut by the Federal Reserve — from 1.25% to 1% — offers an enticing appeal to domestic manufacturers looking to gain ground against imported goods. Likewise, Phase I of President Trump’s trade deal with China will lower tariff rates at a time when manufacturers are poised to capitalize on them.
Outlook modeling shows optimism
Economists revising their 2020 outlook reports to factor in COVID-19 also show optimism when it comes to American manufacturing. Current projections cut Asia’s GDP growth from 5.7% to 4.9%, while the U.S. expects to see only a nominal adjustment, down to 1.9% from an original 2% GDP growth outlook.
Moreover, a report by the Caixin/Markit Manufacturing Purchasing Managers’ Index shows Chinese manufacturing bearing the brunt of COVID-19, measuring 40.3 on a scale of 1-100, where 50 marks the line for recession. The U.S. holds steady at 50.7, with opportunity to gain ground in the wake of China’s downturn.
Will U.S. manufacturing weather COVID-19?
Much of the momentum behind domestic manufacturing right now is a matter of lag time. China has more than 80,000 confirmed cases of COVID-19, while the U.S. has just over 1,200. That number is sure to rise astronomically as the virus gains ground on U.S. soil; however, the country has already begun proactively combatting its transmission. Lowering the transmission rate could spare U.S. factories the same magnitude of closures.
If the number of infected cases in the U.S. mimics other developed countries, manufacturing could be in for rough times. In the immediate environment, however, there’s an opportunity to shine in the wake of China’s untimely manufacturing setbacks.