Moving Manufacturing Out of China and Into Other Asian Countries

Trade tensions between China and the United States, the world’s two biggest economies, has now stretched into a second year. This has caused U.S. manufacturers to shift production from China to other countries. Compared to last year, imports from China have seen a 12% decrease, the largest decline in 10 years.

U.S. companies have been preparing for an extended period of uneven trade relations, which has caused a shift among global manufacturing supply chains. The second half of the year saw the changes accelerated when the tariff on Chinese imports increased from 10% to 25% in May.

Furthermore, those companies that have been moving their operations outside of China don’t expect to move back even if trade tensions decrease. Executives within the companies have spent considerable time and money towards investing in new facilities and moving shipping arrangements to accommodate the new locations.

On the Move

Many large companies are choosing to produce in other countries aside from China in order to avoid U.S. tariffs. Among those list of companies include Apple Inc., Croc shoes, Yeti beer coolers, GoPro cameras, and Roomba vacuums. Lovesac Co., a top furniture retailer, started the year making 75% of its furniture in China but now only makes 60% there. They are in the process of moving production to Vietnam and plan to be out of China by the end of the year.

iRobot Corp is starting a new Roomba production line in Malaysia during the year while Yeti Holdings Inc. is moving most of its production of soft-sided coolers out of China by the end of 2019. Crocs Inc. stated that by 2020, less than 10% of its products will be made in China. Cummins Inc., the diesel-engine maker, has moved its production of goods to India and other countries, altogether avoiding $50 million in tariff expenses.

The changes in production have been very beneficial to other Asian countries. Vietnam, India, Taiwan, and Malaysia all have relatively low production costs and have seen a sharp increase in exports. Vietnam will see a large spike in numbers as U.S. imports from there are expected to reach almost $65 billion in 2019, a 36% increase from 2018.

Possible Changes to U.S. Manufacturing

The Trump administration hoped the tariffs would encourage U.S. manufacturers to move their production from China back to the U.S but that doesn’t seem likely. Imports from other Asian countries has risen but U.S. manufacturing output has fallen. The Federal Reserve reports that U.S. manufacturing output saw a peak back in December but has dropped 1.5% since May. The Institute for Supply Management has stated that its manufacturing index decreased to its lowest level since 2016 in June.

The network of manufacturers and suppliers in China is less comprehensive in other countries, making it difficult to find a country that can match importing out of China. This has led some companies, like Crown Crafts Inc., to keep its manufacturing in China despite the tariff costs. Crown Crafts Inc. analyzed its manufacturing costs in six other countries and ultimately decided to stay in China.

Some companies can’t find suppliers outside of China and more than 100 companies have asked the Commerce Department to waive the latest 25% tariff on their imports. Electronics companies, in particular, are being hit hard by the tariffs. Many electronics, like the popular Apple iPhone and Nintendo Switch, are manufactured outside of the United States. Trade tensions are interfering with China’s supply chains to the effect that many companies are considering moving their operations out of the country.

It’s hard to say what the long-lasting impact will be on U.S.-China trade relations will be. Trade tensions still remain high after nearly 2 years, and there doesn’t seem to be a near end in sight. Other Asian companies will reap the benefits from Section 301 tariffs as China and the U.S. continue their trade war.

R+L Global Logistics can assist with moving your goods out of China and into other Asian countries. Our international services can transport your items via air freight or ocean freight to your new location. R+L Global Logistics’ worldwide network and professional team ensure a smooth transition from pricing, service agreements, tracking, and delivery. Call us at 877-510-9133 to speak with one of our international customer service representatives to get started!