The Trump administration is “pushing ahead” with an effort to cut off global industrial supply chains from China as it considers new tariffs to punish Beijing for its handling of the coronavirus outbreak, according to officials familiar with U.S. planning.
President Donald Trump, who has stepped up recent attacks on China ahead of the Nov. 3 U.S. presidential election, has long pledged to bring back manufacturing from overseas.
Now, the economic destruction and massive U.S. coronavirus death toll are leading to a government-wide push to shift production and supply chain dependency away from the U.S.
“We’ve been working on [reducing our supply chains’ reliance on China] for the past several years, but we’re just ramping up that initiative now,” Keith Krach, assistant secretary for economic growth, energy and the environment at the U.S. State Department, told Reuters.
“I think it’s essential to understand where the critical areas are and where critical chokepoints exist,” Krach said, adding that the matter was key to U.S. security and one on which the administration could announce further action soon.
The U.S. Commerce Department, State and other agencies are looking at ways to pressure companies to move both sourcing and manufacturing out of China. Tax incentives and possible re-shoring subsidies are among measures being considered to drive changes, current and former officials told Reuters.
“There’s a whole government push on this,” one said. Agencies are looking into what manufacturing should be considered “essential” and how to produce these products outside of China.
Trump's China policy has been defined by disputes between pro-trade advisers and China hawks, the latter now saying their time has come.
“This moment is a perfect storm; the pandemic has crystallized all the concerns people have had about doing business with China,” said another senior US official.
"All the money people think they made from doing business with China before has now been dwarfed by the economic damage" from the coronavirus, the official said.
Economic prosperity network
Trump has repeatedly said he could impose new tariffs on top of the tax of up to 25% on $370 billion of Chinese goods currently in effect.
American companies, which pay the tariffs, are already complaining about the existing ones, especially as sales plummet during coronavirus lockdowns.
But that doesn’t mean Trump will oppose the new ones, officials say. Other ways to punish China could include sanctions on officials or companies, and closer relations with Taiwan, the self-ruled island that China considers a province.
But the discussions about moving supply chains are concrete, robust and, unusually for the Trump administration, multilateral.
Latin America can also play a role.
Colombia's ambassador, Francisco Santos, said last month that he was in talks with the White House, the National Security Council, the U.S. Treasury Department and the U.S. Chamber of Commerce about a push to encourage American companies to move some supply chains away from China and closer to home.
China surpassed the United States as the world's top manufacturing country in 2010, and was responsible for 28% of global output in 2018, according to United Nations data.
The pandemic has highlighted China’s key role in the supply chain for generic drugs here that account for the majority of prescriptions in the United States. It has also demonstrated China’s dominance in products like the thermal cameras needed to screen workers for fever here, and its importance in the food supply.
Hard sell for companies
Many American companies have invested heavily in Chinese manufacturing and depend for much of their sales on China's 1.400 billion people.
“Diversification and some redundancy in supply chains will make sense given the level of risk the pandemic has uncovered,” said Doug Barry, a spokesman for the U.S.-China Business Council. “But we don’t see a wholesale rush to exit companies that do business in China.”
John Murphy, senior vice president for international policy at the U.S. Chamber of Commerce, said U.S. manufacturers already meet 70 percent of current pharmaceutical demand.
Building new facilities in the United States could take five to eight years, he said. “We are concerned that officials need to get the information right before they start looking at alternatives,” Murphy said.
The Trump White House's promises to punish China have not always been followed by action.
A move to block global chip exports to blacklisted Chinese telecoms giant Huawei, for example, favored by hawks in the administration and under consideration since November, has yet to be finalized.
The United States is pushing to create an alliance of “trusted partners” called the “Economic Prosperity Network,” one official said. It would include companies and civil society groups that operate under the same set of standards in everything from digital business, energy and infrastructure to research, trade, education and commerce, he said.
The U.S. government is working with Australia, India, Japan, New Zealand, South Korea and Vietnam to “move the global economy forward,” Secretary of State Mike Pompeo said on April 29.
These discussions include “how we restructure … supply chains to prevent something like this from happening again,” Pompeo said.
Source: Reuters
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