BofA Puts Cost Of Re-Shoring At $1 Trillion

Submitted by Market Crumbs,

Manufacturing has been moving to China from the U.S. and Europe for decades. As a result of the coronavirus pandemic, many companies are now looking for ways to bring manufacturing back home...

Research from Bank of America estimates that it could cost U.S. and European companies $1 trillion over five years to move manufacturing out of China. Bank of America argues that the cost of doing so would likely be beneficial to companies over the long term.

Bank of America's survey of global analysts from before the pandemic began found that companies were already starting to shift supply chains locally. The research cites trade disputes, national security concerns, climate change and the rise of automation as reasons companies had started to move away from globalization.

The coronavirus caused 80% of global sectors to have supply chain issues, according to the report. 67% of respondents from Bank of America's Global Fund Manager survey believe localizing or re-shoring supply chains is the most dominant structural shift going forward.

"While Covid has acted as a catalyst to accelerate this change, the underlying reasons are grounded in a shift to 'stakeholder capitalism,' concluding relocation favors a broader community of shareholders, consumers, employees and the state," Bank of America Head of Global Research Candace Browning said.

The team behind the report believes policymakers and corporations will aggressively pursue re-shoring plans to offset higher operating costs.

"We don’t expect a silver bullet, but we were struck by the universal declaration (in our survey) of intent to automate in future locations," the report said.

"Policymakers are also expected to help through tax breaks, low cost loans and other subsidies with recent announcements to that effect from the U.S., Japan, the EU, India and Taiwan (amongst others)."

Bank of America believes the best way to invest in the unraveling of globalization is through stocks in engineering, machinery, automation and robotics, electronic equipment manufacturing and application software. They also see banks in North America, Europe and South Asia benefitting as a result of increased economic activity in these regions.

This trend could easily accelerate in the years to come as companies may end up looking back on the coronavirus as a wake up call to have their supply chains insulated from the worst.