While the long-term effects of the coronavirus on the global economy are still unclear, one highly likely impact will be a reconfiguring of global supply chains.The coronavirus will drive a shift in global manufacturing that could influence investment patterns for decades.

This builds on factors that were already at work. One is automation, and the reduced importance of cheap labor to production. Technology is enabling more production with fewer people, reducing the benefits of cost arbitrage. Some companies are also looking to bring production closer to home, to be more flexible and responsive to markets. Advancements in the Internet of Things are enabling this to happen on a new scale.

The second driver is trade policy, and the U.S.-China trade war in particular. U.S. companies that produce or source in China want to reduce their vulnerability to political conflicts and tariffs. Reducing their purchasing or production in China is one way to step out of the line of fire.

The rest of the column, can be accessed from the home page of the Economic Institutes’ website www.bayareaeconomy.org, explains further.