As policymakers consider measures to reduce supply chain dependency on China, Business Roundtable commissioned a report from Rhodium Group to understand the current state of supply chain diversification and the key factors that would enable broader diversification. The “China Diversification Framework Report,” released earlier today, presents several conclusions:

• Ongoing Diversification Trends: Diversification beyond China is evident through China’s decreasing share of U.S. imports and foreign direct investment (FDI) in recent years.
• Sector and Country Concentration: Current diversification is focused on a few countries — mainly Mexico and Vietnam — and sectors, largely in the assembly segment, leading to potential capacity constraints and rising costs that could slow diversification activity.
• Key Factors: Two factors help explain the gap between a country’s diversification potential and diversification outcomes: availability of a workforce with basic-to-advanced skills and participation in cross-border market access agreements, such as the U.S.-Mexico-Canada Agreement (USMCA).
• Diversification Potential and Gaps: Beyond Mexico and Vietnam, other countries like Canada, Taiwan, Germany and South Korea are gaining trade and FDI shares, while other security-aligned nations like Japan, Australia and the Philippines are not. 
• Opportunities and Challenges: Opportunities exist to help U.S. companies diversify supply chains by investing in the economies of core U.S. partners and allies, as well as to align trade and FDI patterns through active commercial diplomacy and policy actions.

Business Roundtable remains committed to advancing secure and resilient supply chains, as outlined in a new report, “Resilient, Diverse and Secure: Improving Critical Supply Chains.” Among other policy recommendations, the Roundtable’s report recommends that the United States pursue new trade agreements, particularly in Asia.