North America an Outlier in Trend of Nearshoring
Most of the world is shifting more of its imports to relatively nearby countries -- for instance, trade within Asia, or Western European Union countries importing from Poland, Morocco and Turkey -- according to a new report from the McKinsey Global Institute presented April 11 at the Peterson Institute for International Economics. The cost of managing far-flung suppliers across many time zones, combined with rising wages in China, proved "much higher than expected," according to Susan Lund, leader of the project. But the United States is an outlier. The proportion of North American trade that's done within the NAFTA countries is down over the last five years.
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Lund said that 49 percent of McKinsey clients that import are changing where they source products, and 33 percent say trade is their top concern. The viability of supply chains when there are so many tariffs and threatened tariffs in the U.S. is being examined by many companies. "Trade has never been higher on our customers' agenda," said Natalie Blyth, global head of trade for HSBC.
"Some countries are now doing 'design for tariffs,'" Lund said. She gave an example of turning what had been classified as leggings into a pair of pants, so that it qualifies for a lower tariff. "As an economist, I have to think it's a dead-weight loss."