Companies Look To Shift To New Factories Due To Tariffs In US-China Trade War

The hit of the trade war is forcing Taiwan’s Advantech, the largest maker of industrial computers in the world, to plan boosting its US production. This would allow the company to avoid the 40 per cent tariffs imposed on the its goods by the United States if it were able to assemble more of its products in the country, said the company’s executive director Chaney Ho in an interview with the BBC.

Advantech is but just one of many companies that are contemplating making adjustments to their supply chain because of the trade war between the two largest economies of the world – the US and China. Trade representatives of the two countries are scheduled to meet this week in Washington. Both the countries have imposed higher than regular import tariffs on each others’ products worth billions of dollars and are now in the process of trying to iron the contentious differences in trade and policies through negotiations during a 90 day truce to the trade war as agreed between the top leaders of the two countries. A high-level Chinese delegation will visit Washington for two days of negotiations, beginning on Wednesday. The truce to the trade war is scheduled to come to an end on March 1 and if a solution is not found within this time, the US is set to increase tariffs on $200bn worth of Chinese goods to 25 per cent from 10 per cent.

Advantech is one Asian company that has been caught up in the crossfire between the US and China. According to data from IHS Markit, the company is the largest manufacturer of industrial PCs which are computers that industries like hospitals, infrastructure and transport use to power machines. Currently the company uses its two production units in mainland China and Taiwan equally for production. Its US and Europe plants are used by it to assemble many of its products. The import imposed in the US in 2018 has hit about 40 per cent of its goods that it sells in America, said the company’s co-founder and executive director Chaney Ho.

The company plans to boost its US capacity to soften that blow. A part of the production that is currently assembled in China would be moved to the US and would be brought back into China is if the tariffs are reversed.

“We are going to increase the capability because of the tariffs,” Ho said.

There are other companies that could also be forced to alter its supply chain or sourcing or manufacturing locations in order to avoid the US-China trade war.

Investment bank UBS recently conducted a survey of 200 manufacturing firms and found that 33 per cent of the companies surveyed were contemplating moving their production units out of China in the next one year partly because of the ongoing trade war. The survey also found that 37 per cent of the companies surveyed had in the last year moved their production unit out of China. For example, two of Apple Inc’s suppliers also want to increase their production capacity in units outside of China. Similar actions are also being taken by some tech companies.

For example, more than $200m in India and Vietnam would be invested by Foxconn while production facilities in Indonesia, Vietnam and India are being reportedly planned by Pegatron.

This trend is expected to continue to accelerate if the US hikes tariffs again, said Deborah Elms, executive director of the Asian Trade Centre in Singapore.

“At that point the US company or sourcing company will say this is serious and doesn’t appear to be going away, and at 25%, that’s a lot of money.”

(Adapted from BBC.com)

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