The escalating trade war between China and the United States has prompted Chinese manufacturers and US customers to rethink the supply chain relationship between the two economies.
The Trump administration has imposed a 25% tariff on $50 billion in Chinese industrial products and is considering continuing to impose tariffs on $200 billion of Chinese exports. Currently, in order to alleviate the pressure on American consumers, most consumer goods have been removed from the tariff list. But manufacturing and retail executives are concerned that the range of products affected may expand.
Supply chain gradually transferred from China
Although the factory owners have certain management experience in terms of rising wages and rising raw materials, the trade war of uncertain scale has become a special challenge for them. Ms. Chen, Chairman and CEO of the Hong Kong Young Industrialists Committee, said: “This is the time when manufacturing considers how to spread risk, upgrade products, increase value or expand production to other regions.”
China is the world’s largest exporter of manufactured goods, but in the past decade, some factory owners have begun to shift production to other developing countries, such as Bangladesh, Cambodia and Vietnam, where they have lower wages and rely on these hedging countries. Political and economic risks.
Factory owners and US buyers say trade wars will exacerbate this shift
When a handbag product is included in the proposed $200 billion tariff list, US executives are eager to find alternative production sites outside China.
Three years ago, American entrepreneur Steve Madden began to transfer part of his handbag production from China to Cambodia. He said: “In addition to considering the price factor, he plans to double the production of Cambodia next year to reach its total output. About 30%.”
Flex CEO Michael McNamara believes that it will be “inevitable” for the company to reduce its reliance on China, but it will take time. “In the long run, many customers will demand more manufacturing in the region to reduce supply chain expenses and reduce the risk of tariff impact,” he said.
But unless the company has a relationship with the factory, suppliers and the government, it is difficult for these entrepreneurs to transfer production areas.
Li & Fung CEO Spencer Fung said that although “many people are eager to move out of China”, US retailers, including Wal-Mart and Cole, are sourcing goods from factories around the world, and it may take a year or two to stabilize. Production in new countries.
In recent years, Vietnam has been at the heart of many companies’ manufacturing strategies, attracting investments from companies such as Samsung, Daikin, Japan Air Conditioning Group and Techtronic. Some garment manufacturers supplying European American fashion brands have also moved from China to Vietnam.
Larry Sloan, a Capstone executive who sells Chinese-made LED lighting equipment in the US, said: “Moving a machine to a new country is much easier than copying the complex supplier network that the electronics industry needs. Everyone is looking for A way of hedging, but it’s not easy, you can think about it, all the components that make electronics are from China.”
Chinese manufacturing still dominates
Uncertainty in the direction of Sino-US tariffs and other relations has made manufacturers feel uneasy, but some company executives said that China may continue to maintain its dominant position.
Last year, China’s garment exports still accounted for 35% of the world, while Bangladesh accounted for only 6.5%, Vietnam’s 5.9%, and Cambodia’s 1.6%. According to the World Trade Organization, China is also in a similar dominant position in terms of offices and telecommunications equipment.
Entrepreneur Mr. Feng said that he hopes that Chinese factories can deal with trade wars by finding ways to improve their competitiveness, instead of facing pressureless changes, from automation to the development of higher value-added products. He believes that Chinese factory owners will not let the business close, they will cut their heads to find a way. The production capacity made in China will never fall sharply.
Retailer’s profits may be affected
After the implementation of the Trump administration’s tariff policy, it may be affected by US importers selling related products. But this impact may spread in the supply chain, extending from one end of the consumer to the other end of the Chinese factory.
S&P Global’s Panjiva said nearly 200 US companies mentioned tariffs in their recent earnings reports, with 47% saying they would raise consumer prices. For example, Edward Rosenfeld, CEO of Steve Madden, mentioned in the earnings conference call that “data behind the data” indicates that retail prices need to rise by about 3.5% to offset the 10% tariff.
But analysts say that no matter how retailers can’t pass all costs on to consumers. In addition to some high-end brands, many retailers selling ordinary products are afraid to raise prices substantially. They must look for other ways to hedge tariff pressures.
Therefore, the retailer’s profit margin may be affected. A sharp increase in prices will seriously damage the US consumer market and thus harm the interests of all participants.
In the context of escalating trade wars, every trade participant, including retailers, importers and manufacturers, needs chips.