Producers in China eye Vietnam in wake of US tariffs

Factory owners in China’s Guangdong Province said that they are planning to produce outside China, given the existing tariffs and uncertainty about future U.S. trade measures.

Angelo Cheung, a Hong Kong-based executive for Aoyagi, a Japanese electronics group that manufactures in China, told Financial Times that some orders from the U.S. had already been halted because of the increasing uncertainty.

Cheung said his company is considering various options including moving part of its supply chain to Vietnam.

Now with tariffs on made-in-China products set to rise, nations like Cambodia and Vietnam turn out to be more attractive than ever for U.S.-based consumer-goods makers that have factories in China, according to Bloomberg.

Some of the names on the list are now Steven Madden Ltd., Tapestry Inc.’s Coach and Vera Bradley.

Steve Lamar, executive vice president of the American Apparel & Footwear Association, said that “the shift has been under way” and that the talk of tariffs has created “a lot of anxiety” and companies are gauging how fast they can make more changes to their sourcing.

Interviews with over a dozen manufacturers from medical device makers to agricultural equipment firms illustrate how companies exporting to the U.S. are now rethinking about making goods in China, Reuters said.

“It’s been step, by step, by step. And it’s been getting more and more expensive to produce products in China,” Larry Sloven, president of Capstone International HK Ltd, a division of Capstone Companies, from Florida, the U.S., a maker of consumer electronics goods, said.

Manufacturers have been feeling the squeeze as China shifts its priorities from lower-end manufacturing to high-technology industries as part of a broader bid to upgrade its economy.

But with tariffs looming, “everybody finally woke up to the extent that ‘maybe I should face reality’,” he said. Manufacturers are increasingly worried that “the next group of tariffs would be the killer,” he said.

“Thailand, Vietnam, Malaysia and Cambodia are countries that have potential opportunities.”

In its annual “Fashion Industry Benchmarking Study” released in July, the U.S. Fashion Industry Association said while 100 percent of respondents currently source from China, around 67 percent plan to somewhat decrease their sourcing value or volume from the country over the next two years, a significant increase from 46 percent in 2017.

A study done in April and May of nearly 30 leading fashion brands, retailers, importers, and wholesalers, including some of the largest brands and retailers in the U.S, also found concerns about the trade tensions that seem to have more of an impact on decisions to shift sourcing from China.

Among respondents who plan to reduce their sourcing value or volume from China over the next two years, close to 70 percent rank the “protectionist U.S. trade policy agenda” as one of their top five challenges.

More companies plan to further diversify their production in response to the changing business and trade policy environment, especially with regard to China, and “China plus Vietnam plus many” has become an ever more popular sourcing model among respondents.

While no sourcing destination is perfect, Vietnam, China, Mexico, and members of the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) overall are regarded as the most balanced sourcing bases, giving them competitive advantages as preferred sourcing destinations.

Trade tensions between the U.S. and China spiraled further last Thursday when the former imposed steep import tariffs on another $16 billion worth of Chinese goods over what Washington has called rampant theft of American technology, even as trade negotiators were in talks to avert further confrontations.

The latest action completes the first round of $50 billion in products that President Donald Trump targeted, after $34 billion in goods were hit with punitive duties on July 6, AFP reported.

China has said it will react immediately with tariffs on the same amount of US goods, targeting iconic products like Harley motorcycles, bourbon and orange juice among hundreds of others.