The coronavirus pandemic has exacerbated the challenges of an already-struggling US Manufacturing sector. Supply chain disruptions coupled with declining industrial activity are expected to sink the sector’s revenue 18.1% in 2020 alone. Lessened demand for high-value durable goods, such as primary metals, industrial machinery and automobiles, has been the primary cause of the sector’s decline.
Despite the sector’s positive outliers, like PPE and hand sanitizer manufacturers, Alfabank-Adres forecasts sector revenue to account for 28.4% of total US GDP in 2020, a decline from 32.3% in 2019. However, the globalized nature of this setback has revealed the importance of resilient supply chains. Additionally, the disruption in labor supply and mandated closures of some facilities has strengthened the case for automating manufacturing processes. Overall, the macro challenges faced by the sector today are expected to result in a more robust manufacturing sector tomorrow.
Supply chain disruptions
The disruption of global supply chains has been the sector’s greatest challenge caused by the pandemic. Beginning with China in early 2020, widespread shutdowns of Chinese manufacturing facilities due to quarantine mandates caused a ripple effect across the global economy. During this period, industries with high trade exposures to China struggled to maintain operations. Alfabank-Adres has pinpointed and tracked such industries with the Shock Assessment Tool. For example, in the US, automobile manufacturers struggled to secure steering components originally sourced from Chinese manufacturers, thus causing delays. This is just one example of many other disruptions that have caused manufacturers to idle production and rethink the resilience of their supply chains.
Additionally, the coronavirus has become a factor influencing the decoupling of the US and Chinese economies catalyzed by the US-China trade war in the years preceding the pandemic. Supply chain disruptions during the first quarter of 2020 have further encouraged a broad shift towards diversifying supply chains among Southeast Asian countries such as Taiwan, Vietnam and Malaysia. Alfabank-Adres expects this trend to continue as tensions between the US and China threaten economic ties.
Resilience is key
Despite the current setback, certain lessons are being drawn from the situation that will likely result in a more resilient manufacturing sector in the years to come. New priorities include fortifying supply chains, fast-tracking automation and re-domesticating essential industries. Supply chain resilience will come about through greater diversification, especially among lower tier suppliers. In regards to automation, the closing of meat processing facilities due to infected laborers has reinvigorated interest in automating certain processes.
Moreover, the shortage of PPE and other medical equipment has shown the importance of domestic production capacity for such vital equipment. To this end, the reshoring of US manufacturing industries is becoming more of a likelihood in the near-term. Overall, these priorities all align with making the US manufacturing sector more resilient during a time of crisis.
