Utah companies are trying to pull out of China: But diversifying the supply chain isn't easy.

• Author: Bagley, Judd

TODAY, CHINA MANUFACTURES as much as the US, Japan, Germany, and England combined. Despite the Trump tariffs, the trade imbalance between the US and China reached a record $323 billion in 2018--in China's favor-having jumped a staggering 17 percent from 2017.

While it's long been de rigueur to regard such economic over-dependence with concern, consumers have enjoyed the very practical benefit of abundant, cheap stuff. And then the pandemic happened, and suddenly we couldn't get that abundant, cheap stuff.

"The pandemic definitely shone a light on the risk of over-reliance," says Alicia Ingersoll, a professor of supply chain management at Weber State University. "When we have lockdowns, when fuel prices spike, when we can't get containers to ship things--all of that dominoes into this really big ball of supply chain risk."

The skincare company Nu Skin learned that lesson the hard way. When Q2 saw revenue down by 20 percent compared with the year prior, layoffs ensued, with CEO Ryan Napierski blaming "extended COVID-related factors in Mainland China"--specifically extended lockdowns.

COVID-related lockdowns affected a lot of companies dependent on China. "The Chinese government has set up production hubs for different kinds of products, all located in the same city--sometimes the same business park," says Dawson Westenskow, VP of product and operations at Teton Sports. "They already have the supply chain, the materials, the know-how, the specialized equipment; everything is ready to go. It's plug-and-play."

Westenskow uses sleeping bags as an example. Filled with fibrous insulation, that insulation must be created using a specialized device called a garnetting machine or purchased as pre-made batting. Both options exist in abundance in China's textile hubs.

"You can't find that kind of material in Latin America," Westenskow explains. "They'd have to make it, which means they need to have a garnetting machine, which is going to cost half a million dollars. You also need a specialized machine that sews zippers. So if you want to move production to a place like Mexico, you'd first have to find and invest in the correct machinery."

This infrastructure chicken/egg conundrum suddenly throws the economics of moving production to many places, particularly lower-cost labor markets in the western hemisphere, into doubt. And that has a disproportionately severe impact on smaller companies and those selling more complex items.

"Needing that know-how and...