U.S. supply chains adopt “China Plus One” strategy to diversify trade patterns

U.S. supply chains are adopting a “China Plus One” strategy as they shift away from an over-reliance on trading partners in that single country and strive to include more Asian and European markets in response to the pressure of recent trade wars and the coronavirus pandemic, according to an analysis by commercial real estate giant CBRE.

The trend is borne out by statistics showing that China-to-U.S. exports decreased 12.7% in 2019, and total trade between the countries was down $100 billion year-over-year, CBRE said. The main countries benefiting from that shift are Taiwan and Vietnam, which saw their total trade with the U.S. increase in 2019 by $18.7 billion and $9.1 billion, respectively, CBRE found. Smaller increases are also going to Belgium, the Netherlands, and France, all within the European Union.

Despite those moves, China will remain one of the largest trade partners for the U.S. “While we will not see a widespread exodus from China, we will see a shift in trade patterns that will trigger broader effects on U.S. supply chains, including increased industrial distribution development and increased domestic manufacturing,” John Morris, CBRE’s executive managing eirector Americas Industrial & Logistics, said in a release.

The report echoes a similar finding from the industry analyst firm Gartner, which said in June that a survey showed one third of companies with global supply chains have moved their sourcing and manufacturing activities out of China or plan to do so in the next two to three years. Likewise, that survey cited the three reasons for the change as Brexit, the pandemic, and rising trade tariffs. The Gartner survey also found that a top alternative location was Vietnam, but said trade was rising with India and Mexico too.

According to CBRE, the shifting supply chain patterns stand to make ripples domestically as well, sparking rising industrial demand in the Southeast and Gulf regions of the U.S. Those areas will be boosted by growth in trade with Europe and parts of Asia that access the U.S. through the Suez Canal, thanks to the Southeast’s 85 million person population, which is the largest in the U.S. and is projected to grow 4.8% in the next five years.

Specifically, CBRE predicts fast growth at the ports of Houston, Charleston, Virginia, and Savannah. “West coast port fundamentals will remain sound and see growth in the coming years, but the top markets for growth will likely shift to the Southeast,” James Breeze, CBRE’s global head of Industrial and Logistics research, said in the release. “As trade patterns change, this region offers significant logistics capacity, available land for industrial and manufacturing development, lower asking rents, and access to the largest population concentration in the country.”

Likewise, domestic manufacturing is likely to increase, as more parts are sourced from North America in an effort by retailers and manufacturers to become more flexible and nimble by locating more of their operations closer to their consumer base. That trend will also be pushed by the recent United States-Mexico-Canada Agreement (USMCA), which is expected to drive more reshoring and increased industrial demand, especially in the automotive industry, CBRE said.