alexa certify
0

US, European Firms To Incur $1 Trillion in Relocating Costs

Some US and European companies are planning to move their manufacturing processes from China following the effects of coronavirus. They will incur up to $1 trillion relocation costs in the next five years, says Bank of America’s research.

The Bank added that, despite the huge expense, the move is likely to be a long-term benefit to the companies. 

Many companies had already started to explore a more localized supply chain approach earlier. This was even before the coronavirus pandemic arose, according to a survey from BofA’s survey of global analysts.

 

Influencing Factors Include Trade Wars and National Security

Several factors inspired the shifting perspective. These factors were threatening the supply line to modern factories. These could be trade disputes, the rise of automation, national security concerns, and climate change.

Nonetheless, there was a new study by the Head of Global Research at BofA Candace Browning and her team. It suggested that coronavirus has acted as a catalyst. It has reversed the decades-worth of manufacturing shifts from the US and Europe to China.

According to the report, the pandemic has caused a disruption of supply chains. This is for up to 80% of the global sector. This forced more than 75% of companies to expand their existing relocating plans. Browning said that more localized relocation favors are better for a wider community of shareholders, consumers, employees, as well as the state.

“While COVID has acted as a catalyst to accelerate this change, the underlying reasons are grounded in a shift to stakeholder capitalism.”

 

$1 Trillion In Shifting Costs

Over 67% of participants in BofA’s Global Fund Manager survey said that supply chains re-shoring or localization will turn out to be the most dominant change of structure after coronavirus.

BofA further projected that shifting all export-based manufacturing not intended for local consumption in China will cost companies approximately $1 trillion.

As a result of this, return on equity will likely reduce by 70 basis points (bp). Free-cash-flow margins will reduce by 110 basis points. BofA added that the negative effects, while significant, wouldn’t be prohibitive.

Browning also anticipates that offsetting higher operations costs involved in mass restoring operations will force both corporate management and policymakers to act aggressively.

“Policy makers are also expected to help through tax breaks, low-cost loans and other subsidies with recent announcements to that effect from the Japan the EU India and Taiwan (among others.)”

In the survey, affected companies revealed that:

“We don’t expect a silver bullet but we are struck by the universal declaration of intent to automate locations.”

As the second-largest world economy, China will likely feel the pangs of an existing global manufacturing business. The recent economic recession in the EU will impact the recovery of the global economy. This is also in addition to the massive quantitative easing in the U.S. This is an economy that is undergoing a major reorganization amidst an ongoing pandemic.

The upcoming localization will represent positive economic news only if companies choose to, due to an assessment of efficiencies, but not through forced trade tariffs, according to Paul Donovan, UBS Global Wealth Management Chief Economist.

  • Support
  • Platform
  • Spread
  • Trading Instrument
Comments Rating 0 (0 reviews)

Get the latest economy news, trading news, and Forex news on Finance Brokerage. Check out our comprehensive trading education and list of best Forex brokers list here. If you are interested in following the latest news on the topic, please follow Finance Brokerage on Google News.



You might also like

Leave a Reply

User Review
  • Support
    Sending
  • Platform
    Sending
  • Spread
    Sending
  • Trading Instrument
    Sending

Financebrokerage