It would cost $1 trillion to move global supply chains out of China—and that might be a bargain for some companies

The coronavirus pandemic has wreaked havoc on the supply chains of companies around the world—prompting firms in 80% of sectors globally to recalibrate their operations in some fashion, according to analysts at Bank of America Global Research.

Coupled with a worldwide trend away from globalization in recent years—one spurred by “populist antipathy toward free trade” and epitomized by the U.S.-China trade war—the pandemic has accelerated a shift toward the “re-shoring” of supply chains by companies around the globe, BofA analysts say.

But with emerging markets like China having entrenched themselves as pivotal to the global supply chain, it’s clear that re-shoring away from such markets is a costly proposition. In fact, BofA analysts have put a price tag on what it would cost for all foreign, non-Chinese firms to repatriate their manufacturing operations currently in China: $1 trillion over a five-year period. (To put that in context: The companies on Fortune’s Global 500 generated $33.3 trillion in revenue and $2.1 trillion in profit in 2019.)

Such expenditures (which would not include the shift of manufacturing intended for consumption within China) would be “significant, but not prohibitive” to companies’ bottom lines, according to BofA. While free cash flow margins and return on equity would take a hit in the near term, there would be positive “multiplier effects on the broader economy”—including new jobs and higher wages for domestic workers, greater spending on research and development, more tax revenues, and the development of new “industrial clusters” within developed countries.

The $1 trillion figure, the analysts note, does not include the higher operating costs that would be associated with doing business in more developed markets, which “could act as a drag on margins.” And industries with “structurally higher returns,” like tech and health care, would have an easier time absorbing the necessary expenditures than others with “more muted cash flows,” which would likely have to resort to external financing sources to fund their restructurings.

But companies would likely be able to count on help from policymakers—such as tax breaks, subsidies, low-cost loans—to “offset higher costs associated with re-shoring” in the interest of boosting their domestic economics.

The BofA analysts focus primarily on companies and countries outside of China, rather than on China itself. But they do note in passing that the impact on the world’s second-largest economy could be significant. Foreign-company exports, the BofA report estimates, represent 40% of all Chinese exports and about 7% of China’s GDP. China in recent years has made concerted efforts to focus its economy less on trade, and more on goods and services for domestic consumption.

A boon for ‘stakeholder capitalism’

BofA also identified another major reason behind this trend toward the “localization” of supply chains: the emergence of “stakeholder capitalism,” which has prompted companies to become more accountable to the needs not only of shareholders but consumers, employees, and regulators. The analysts note that three-quarters of industry sectors in North America and the Asia-Pacific region and two-thirds of those in Europe are bracing for “additional scrutiny around their supply chains from governments, corporate boards, and shareholders.”

That entails everything from an increased emphasis on environmental, social, and governance (ESG) criteria by investors—as evidenced by the heightened scrutiny facing firms implicated in China’s treatment of its Uighur ethnic minority—to national security considerations that have played out during the U.S.-China trade war.

While these various stakeholders are approaching supply chain issues from “very different perspectives,” BofA analysts note that they are all arriving at a similar conclusion: that “portions of supply chains should relocate, preferably within national borders and failing that, to countries that are deemed allies.”

It is an accelerating, “tectonic” shift, they add—one representing a stark reversal of the status quo in recent decades—that huge swaths of the global economy will have to account for in the years to come.