When the tariffs were announced, American businesses didn’t race to pull their sourced imports from China opting instead to see if a resolution would be quickly reached. With so many corporations deeply routed in China it would cost them millions of dollars to move their production elsewhere, essentially destroying the Chinese business relationships that they’ve built up over the years.
Over a year later – it’s become a different story as both American and foreign-based companies are pulling their production teams out of China and moving them elsewhere. “People are not waiting, companies are not waiting to see what the outcome is,” Larry Fink, BlackRock Chairman and CEO discussed on CNBC’s Squawk Box. Nintendo, Apple, and Dell have already made the decision to move a percentage of their production out of China with many other business following suite.
United States President Donald Trump had initially urged these companies to bring their production back to the United States - creating thousands of jobs for the American people. Instead, companies are looking elsewhere to countries like Vietnam, India, and Mexico to meet their production needs. “We have been shifting production to Vietnam very aggressively,” CEO of Lovesac Co. Shawn Nelson told The Wall Street Journal. He told the newspaper that by the end of next year he plans to have no production in China.
A recent poll conducted by law firm Baker McKenzie found that 82% of companies around the world say they are transforming their production and supply chain due to the trade war. Approximately 18% of these companies are moving their entire business away from China. Another 58% are moving a percentage elsewhere while keeping a majority of their production in China – a move that will essentially altering the supply chain industry.
Regardless of the outcome of the US-China Trade War, China is in a tight predicament that has already seen a steep decline in monetary growth. After announcing that China’s growth was down, spokesman Mao Shengyong from China’s National Bureau of Statistics stated, “Economic conditions are still severe both at home and abroad, the global economic growth is slowing down…” He goes on to say, “…the economy is under new downward pressure.” As more companies exit the country that downward pressure is only set to increase.
As of June 29,, 2019, trade negotiations were set to resume between both countries. At the time of publishing, the trade war is ongoing. Even if the war were to end tomorrow many companies have already begun moving their production out of China- a time consuming and costly endeavor. Chances are they would not spend additional money moving their production back to China once the two nations resolve the issue. China is not the only country to be effected by the war. China has hit the United States with tariffs of their own to the tune of $110 billion.
