Social Distancing From China

The collective sentiment towards China is beginning to shift at an accelerated rate. The Social Counterparty Risk between the United States and China has never been higher. The perception of a symbiotic relationship between the two powers is quickly fading. COVID-19 may be the straw to break the camel’s back.

The United States use to view China as a source of cheap labor to mass produce our various goods. Some may have even viewed our presence in China through a benevolent lens as the influx of capital helped pull millions of Chinese citizens out of poverty. Lowering the COGS was a sugar rush, and soon even the proudest US based manufacturers realized that if you can’t beat them- join them. Little did anyone realize but the student was seeking to become the master.

That scrawny kid who use to get bullied and has since bulked up? That’s China and they’re beginning to flex their muscles.

Remember this from October 2018?

COVID-19 has put the spotlight on just how much the United State’s relationship with China has changed. 80% of the United State’s supply of antibiotics are made in China. Addressing overdependence of this nature will surely be a bipartisan initiative moving forward. The COVID-19 pandemic has amplified the perception that we are too reliant upon them. Evidence of this narrative can be further exemplified by the fact that President had to invoke the Defense Production Act to compensate for our lack of manufacturing capacity.

Today there is a constant tug of war between the two world powers as we gauge each other’s strengths and prod boundaries. China’s large TAM and world class factories are something the United States can’t just ignore. They’re also something the United States must be careful not to succumb to. The standoff between China and the NBA in October 2019 illustrates just powerful our business partner has become.

Daryl Morey’s tweet was enough to establish a few ground rules for future relationships between China and the United States. They can and will deprive you and your corporation from their massive TAM. The message was received by the NBA; apologies were issued and players remained silent. Ben Thompson summarized it succinctly– China has successfully exported it’s standards. What if this wasn’t just a disruption in the preseason basketball supply chain but a disruption between us and essential antibiotics?

Cultures will clash, that’s normal. What’s concerning is a deteriorating level of trust. Moving forward it is prudent to question everything.

While the above tweet doesn’t reflect the sentiment of the entire country it does resonate with a notable portion of the country and is apart of a larger theme. As the nation recovers from COVID-19 there will be an outcry for the United States to practice social distancing from China. This will be realized through bipartisan efforts to relocate critical medical supply chains and to further incentivize corporations to relocate their own supply chains. Corporations should already be wary of the PR risks associated with Chinese sourced labor and will likely now be held to a higher standard by the American consumer. Polarized by recent events we should see a conscious effort to purchase products Made In The USA while simultaneously supporting small and medium sized businesses. If the cumulative damage of recent transgressions from China doesn’t materially alter sentiment and corporate strategy then perhaps nothing will.