More than 50 major companies, from Apple to Nintendo, pull production from China because of the trade war
-/AFP/Getty Images Containers were stacked up last week at a port in China's eastern Shandong province. Beijing has been trying to attract new companies as dozens of U.S. multinationals shift production lines out of the country to escape punitive tariffs.
Throughout the trade war, President Trump has frequently claimed the conflict would force companies to pull their production out of China and move it to the United States. More than a year into it, he’s been proved half-right.
More than 50 multinational corporations have announced plans to move manufacturing out of China, or are considering to do so, according to reporting from the Nikkei Asian Review. Apple, Google, Nintendo and Dell, among others, are trying to avoid the import penalties on $250 billion in Chinese goods. But rather than move their operations to the United States, as Trump urged, many of these companies are aiming to rebuild their supply chains abroad, primarily in Southeast Asia.
Nintendo, the Japanese video game giant, has diverted production of its popular Switch console out of China to Vietnam, according to reporting from the Wall Street Journal. Google has shifted manufacturing of its Cloud motherboards and some Nest smart home products to Taiwan and Malaysia. Hewlett-Packard and Dell both plan to relocate chunks of their personal computer manufacturing to Southeast Asia.
A July survey from the quality control and supply chain auditor QIMA showed that demand for China-based inspections from U.S. companies had fallen 13 percent in the first half of 2019. In the same window, overall demand for inspections in South Asia jumped 34 percent.
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Apple is evaluating the cost of moving 15 to 30 percent of its production out of China, which also is the company’s biggest international market, where it has anchored manufacturing for the past 20 years. An executive from the company told Nikkei that mounting manufacturing risks in China mean Apple will be shifting out of the country regardless of whether a trade agreement is reached.
“A lower birthrate, higher labor costs and the risk of overly centralizing its production in one country. These adverse factors are not going anywhere,” the executive told Nikkei.
Foxconn, which assembles iPhones, iPads and Macs and is one of the world’s biggest contract manufacturing companies, said last month it could still meet demand from American consumers with its current manufacturing capacity outside China. As it looks to shift production, Apple is setting its sights on Southeast Asia, with India and Vietnam being the front-runners for iPhone production. The company has said it will soon start trial production on AirPods in Vietnam, a precursor for mass production.
As it hemorrhages business and production, China has sought to lure new companies. It has cut back on foreign investment restrictions in key sectors such as petroleum, agriculture, mining and manufacturing, the state planning agency announced late last month. The changes take effect July 30.
Related video: Why America's 3.1% GDP growth is much better than China's 6.2% (provided by The Wall Street Journal)
The exodus of American businesses, along with other bruises from the trade war, has taken a toll on the Chinese economy. This week, Chinese officials announced growth had hit a 27-year low.
“Economic conditions are still severe both at home and abroad, the global economic growth is slowing down, the external instabilities and uncertainties are increasing,” Mao Shengyong, a spokesman for China’s National Bureau of Statistics, said in a news conference. “The unbalanced and inadequate development at home is still acute, and the economy is under new downward pressure.”
On Twitter, Trump crowed about the Chinese slowdown, touting it as evidence of his trade war’s efficacy.
“The United States Tariffs are having a major effect on companies wanting to leave China for non-tariffed countries,” Trump tweeted earlier this week. “Thousands of companies are leaving. This is why China wants to make a deal with the U.S.”
Though Trump has repeatedly claimed that the countries on which he imposes tariffs bear their costs, business experts say the reality is that the levies are paid by U.S. companies, which absorb what they can or else pass the cost onto consumers. A recent study calculated that the 25 percent tariffs imposed on China would cost the average American household more than $800 a year, according to a blog post from the Federal Reserve Bank of New York.
Similarly, though Trump maintains the drawn-out conflict is mostly hurting China, experts say the trade war is damaging the U.S. economy and possibly fueling a global slowdown. Federal Reserve Chair Jerome H. Powell has pointed to the head winds from the trade war as a primary reason the central bank could cut interest rates later this month. In January, the World Economic Forum predicted the trade war could reduce global GDP by 0.7 percentage points to 2.8 percent in 2019. And in a recent research note, Morgan Stanley’s chief economist warned that the trade war could spur a global recession within a year.
At the Group of 20 summit in Japan last month, China and the United States agreed to resume trade negotiations and to avoid implementing more tariffs. Treasury Secretary Steven Mnuchin told CNBC on Thursday that he and U.S. Trade Representative Robert E. Lighthizer would be speaking with Chinese officials later in the day, but that many “complicated issues” remained.
Since returning to the United States from China, Trump has expressed frustration that Chinese leaders have not followed through on what he thought were promises to purchase more U.S. farm products, and he has said he will resurrect his threat to impose new tariffs if he isn’t satisfied.