Should we pay companies to move manufacturing out of China?

I note that Japan is doing precisely that.

Japan has earmarked US$2.2 billion of its record economic stimulus package to help its manufacturers shift production out of China, as the coronavirus disrupts supply chains between the major trading partners.

The extra budget, compiled to try to offset the devastating effects of the pandemic, includes 220 billion yen (US$2 billion) for companies shifting production back to Japan and 23.5 billion yen for those seeking to move production to other countries, according to details of the plan posted online.

. . .

The government’s panel on future investment last month discussed the need for manufacturing of high-added value products to be shifted back to Japan, and for production of other goods to be diversified across Southeast Asia.

There's more at the link.

I don't know that it's a good idea to specifically subsidize a negative - i.e. for companies to move their manufacturing out of China, or any other country, for that matter.  However, subsidizing a positive benefit might be worthwhile.  Aid can be given to help critical industries diversify production, so that it's spread across several countries in more than one region (thereby preventing loss of production in one country from shutting down manufacture of that product altogether).  Additional subsidies to bring at least part of that manufacture back to the USA might also be feasible.  They might not involve payment up front, either:  if the US government guaranteed the purchase of a given amount, or a given proportion of domestic production, that might be sufficient incentive.

This might also be a useful lever to use against companies that put their profit ahead of all other considerations.  If they refuse to move their production, on the grounds that it'll cost them too much money, then let the government offer subsidies to competitors to enter that market and make what we need.  If smaller, faster-on-their-feet rivals see that they can benefit, they'll jump at the chance.  It might also be tied to President Trump's proposed investment in our run-down national infrastructure.  If contracts to rebuild (say) bridges, or roads, or railways, are linked to moving production back to the USA, or those contracts specify that only US-produced goods and materials may be used in those projects, that'll concentrate a lot of business minds.

Of course, this may lead to a whole new trade war.  China can be expected to cut its prices to the bone, if necessary with government subsidies to do that, in order to make it too expensive for companies to leave its shores.  Alternatively, it can try to buy up all the critical raw materials needed for production elsewhere, and insist that they'll only be released to manufacturers using them inside China's borders.  There are all sorts of countermeasures China can employ.  It might even start throwing its weight around in the military sphere (e.g. by threatening Taiwan, or stoking up the ongoing controversy over the South China Sea).  That would provoke crises that divert other countries' attention from moving production to putting out geopolitical fires.

It'll be interesting to see how this plays out.

Peter