The Era of Cheap and Plenty May Be Ending

It’s not clear yet to what extent factories are moving closer to home. A “reshoring index” published by Kearney, a management consulting firm, was negative in 2020 and 2021, indicating that the United States was importing more manufactured goods from low-cost countries.

But more firms reported moving their supply chains out of China to other countries, and American executives were more positive about bringing more manufacturing to the United States.

Duke Realty, which rents warehouse and industrial facilities in the United States, expects the change to be a source of demand in years to come, though the reworking may take a while. Customers are “now future-proofing their supply chains,” Steve Schnur, the firm’s chief operating officer, said on an earnings call last week.

“Some reshoring is occurring — let’s make no mistake about that,” Ngozi Okonjo-Iweala, the director general of the World Trade Organization, said in an interview. But the data show that most businesses are mitigating risk by building up their inventories and finding additional suppliers in low-cost countries, Dr. Okonjo-Iweala said. That process could end up integrating poorer countries in Africa and other parts of the world more deeply into global value chains, she said.

Janet L. Yellen, the Treasury secretary, said last month that supply chains had proved too vulnerable given the pandemic and the war in Ukraine, and urged a reorientation around “a large group of trusted partners,” an approach she called “friendshoring.”

The approach might result in some higher costs, she said, but it would be more resilient, and a large enough group would allow countries to maintain efficiencies from the global division of labor.

“Our supply chains are not secure, and they’re not resilient,” Ms. Yellen said, adding, “that’s a threat that needs to be addressed.”

Article source: https://www.nytimes.com/2022/05/03/business/economy/pandemic-supply-chains-inflation.html