The Covid-19 pandemic’s impact was first felt by many companies via their supply lines. As factories and other facilities shut down in China earlier in the year, several businesses had their supply chains thrown into disarray. Now, the cost to relocate these manufacturing processes away from China could cost them quite a large amount of money.
According to research by Bank of America, American and European firms could face $1 trillion in costs over a five-year period. However, even with these costs, the bank says that the move would likely be beneficial in the long term. In fact, the bank found that even before the pandemic, many companies were beginning to shift towards a more localized approach for their supply chains.
The reasons given for this included trade disputes, climate change, increasing automation, and national security concerns. All these factors could place overseas supply lines at risk. With the pandemic, this shift seems to have now become a large priority for these companies. Bank of America found in their research that 80% of global sectors had to face supply chain disruptions. Of those, 75% had to increase the scope of their relocation plans.
As for the financial impact of relocating on the companies, Bank of America sees the potential negatives as being “significant, but not prohibitive.” It’s expected that policymakers and corporate management would also act quite aggressively to help offset these expenses as well. Assistance via tax breaks, low-cost loans, and other subsidies would be anticipated. Sectors including construction engineering and machinery, robotics, application software, and electrical and electronic equipment manufacturing would all potentially benefit from this shift.
Still, the research team noted that this sort of change would only be beneficial if the companies themselves chose to make the decision to relocate. Companies forced to relocate due to tax policy or trade tariffs tend to see more negatives than benefits, according to economic experts.