The World’s Top Bicycle Maker Says the Era of ‘Made in China’ Is Over.
Good News?
No. The US did no benefit in the slightest.
Giant Manufacturing Co. saw the writing on the wall early on. The world’s biggest bicycle maker started moving production of U.S.-bound orders out of its China facilities to its home base in Taiwan as soon as it heard Donald Trump threaten tariff action in September.
“When Trump announced the plan of 25% tariffs, we took it seriously,” Chairwoman Bonnie Tu said in an interview at Giant’s Taichung City headquarters in Taiwan. “We started moving before he shut his mouth.”
Giant is part of a growing number of global firms that are pivoting production out of China in reaction to the increasingly hostile trade relations between the two superpowers. Intel Corp. this week became the latest to say it’s reviewing its global supply chain, while Li & Fung Ltd., the world’s largest supplier of consumer goods, said the trade war is spurring it to diversify away from China.
The switch, however, comes with higher costs for employee payouts, automation and no China-like economy of scale for suppliers. Tu declined to peg the relocation costs beyond saying the company’s “bottom line would be better without the U.S.-China trade war.”
What if Trump and China Agree to a Deal?
The answer is truly amusing.
Giant is open to reverting production to its Chinese plants if the U.S. and China are able to hammer out a trade deal. If America “decides to remove the 25% tariff, we will move the production back to China right away,” Tu said.
US manufacturing is not at all in the picture!
What About Apple?
Inquiring minds may be wondering about the iPhone.
The Wall Street Journal reports Foxconn Says Prepared to Move Apple Production Out of China if Necessary
Foxconn Technology Group said it is ready to shift production for Apple Inc. out of China if necessary, as the electronics assembler tried to assuage investors’ concerns over the U.S.-China trade conflict.
In the company’s first-ever investor meeting and conference call since going public in 1991, senior executives at Taiwan-based Foxconn sought to address investor uncertainty as it prepares for a leadership transition.
“We are totally capable of dealing with Apple’s needs to move production lines if they have any,” said Young-Way Liu, the head of Foxconn’s semiconductor business group, said during the meeting at the company’s headquarters outside Taipei.
Guess Where
Foxconn has plants in Brazil, Mexico, Japan, Vietnam, Indonesia, the Czech Republic, the U.S. and Australia among other countries.
If you guess Foxconn will move most of this to the US, you guess poorly.
And if the Trump and China reach a deal, guess what?
Here’s the answer: Production will shift to the lowest cost provider, not necessarily China.
Supply Chain Disruption
Trump has clearly disrupted supply chains. Companies will move where costs are lowest. However, each shift costs money.
In no case is US manufacturing the likely beneficiary.
What If?
What if Trump puts tariffs on the whole damn world?
Congratulations Trump!
The US will become the world’s highest cost producer of goods.
How will that work out?
Mike “Mish” Shedlock
Actually, Vietnam’s wages are about 1/3rd that of China so they’ll do quite well. Speaking of 3’s, China’s FDI in Vietnam is up 3-fold this year as well.
Indeed, supply chains will just move elsewhere in Asia.
“How will that work out?”
How has de-industrializing worked out? Wealth is created by mining, manufacturing and farming. What is the benefit from fewer Americans participating in creating wealth? What is life like in American towns where factories have disappeared?
Obviously China will (eventually)win,they have massive productive capacity,where as the US has well…….govt!Half the populous works in govt.the other half lives,subsidized,dependent on govt…….gov’t produces nothing (nothing productive)which means to drive a govt based economy you have to borrow (print)like crazy………….until you can’t!
Who cares as long as it’s cheaper. Isn’t that what you want? Cheap Cheap Cheap. Most industrial areas in the US have so much regulation it’s a non starter. If you brought our rules overseas the prices would become a lot more.
Yup. Cheaper is always and everywhere better. With absolutely zero exceptions, aside from perhaps nukes and other genuine WMDs.
Simply because prices are just a different way of saying efficiencies. And doing things in an inefficient manner, can never, ever be better than doing the same darned thing more efficiently.
What is important, is to recognize that the “cheaper is always better” absolute truism, doesn’t somehow become any less true just because some economically illiterate hack arbitrarily “deems” something to be an “asset.” And to recognize that it is this sleight of hand, and government’s ever more draconian attempts at perpetuating the illusion that “rising asset prices” is some sort of good thing, which has rendered the West’s productive workers destitute. Not productive people in other countries.
Tariff away Taiwan, Vietnam, whatever other place our patriotic managers want to move production to. Trump wanted originally Border Adjustable Tax. But taxes require laws, and naturally our patriotic legislature sides with the management (https://www.forbes.com/sites/howardgleckman/2018/07/11/president-trump-opposed-the-border-adjustable-tax-but-loves-tariffs-heres-why). Tariff require no such thing, and Trump is willing to tariff anyone if it is in the US interest.
Here’s an argument why Trump must be re-elected. One can’t start production in flash from nothing. It took decades for the US to shed its industry. It will take some time and potentially painful adjustment for it to come back. Some companies will fail. Now you would need to produce your stuff. WSJ had an article about a fireworks company who stopped producing fireworks decades ago and now only imports them from China. They have a clear choice: either dust up your own production manual, innovate and produce or get out of business and someone else will. The strongest in the end will adjust and win. Trump’s policies need a second term.
How do we know that “moving production to Taiwan” doesn’t just mean completing manufacture in China, and shipping it to Taiwan where you stamp it with “Made in Taiwan” and box it up for shipment?
Well that’s a very good point. Although, the extra shipping step will surely add cost to the process thereby making production in other countries that much more affordable. So, we may not bring the job home, but we help relocate the job out of China – our most powerful adversary. Perhaps the incremental cost gets passed to the consumer, but (again), the consumer is tapped out, so the cost most likely gets eaten by the stockholders (i.e., the ever-dwindling party of wealth holders).
We don’t, and it will. Back in 2002 Bush put some tariffs in effect, and my supplier provided me with goods in cardboard boxes with stickers on them than said “Made in Canada”. Peel off the stickers, and the box itself said “Made in China”.
The idea is; that those dumb enough to believe in trade wars and cheering for Dear Leader over them, are by necessity also too dumb to figure that one out…. The purpose is, after all, for Dear Leader to be able to prance around claiming he is “saving” people. The prancing is the important part. Any actual “saving” irrelevant.
If Trumps goal is to contain China, then his plan will work. If his goal is to bring manufacturing jobs to the US, then it won’t. Any manufacturing moved to the US will be heavily automated.
Jobs repairing and caring for automated equipment pay well.
Is his goal also to contain the EU, Mexico and Canada?
Companies will move to the USA where the costs are lowest. If they move anywhere else we’ll increase the tariffs on that location. It works out that Americans have jobs, low taxes, incentives to work, and prosperity. The socialist mercantile nations like China will have the same poverty they always had. Russians are hungry. Chinese are looking at a famine. Venezuela hit peak socialism.
Taiwan is allied to the US. Maybe China ratchets up tensions in the straits of Taiwan.
4D chess in high effect. 4D meaning 4x dumb.
“Here’s the answer: Production will shift to the lowest cost provider, not necessarily China. Supply Chain Disruption: Trump has clearly disrupted supply chains. Companies will move where costs are lowest. However, each shift costs money.”
So, since we are at peak debt and markets can only charge what people can afford or are willing to spend, then the companies (i.e., shareholders of which is constituted by an ever increasing concentration of wealth holders) will have to eat the costs that can’t be transferred to the consumer. So, we are weakening our greatest foreign adversary. Doesn’t seem such a bad move!
Excellent point about how debt is the unspoken factor in tariff policy.
Peak debt. lol.
Yes, if the purpose is to lower the standard of living by making goods unaffordable, the tariffs will be effective.
Tariffs are not effective unless they are “on the whole damn world.”
Moving factories is expensive. Unless they move home they’ll move again and again and again.
The US population amounts to about 4.3% of the world’s population. It is the height of arrogance to believe we can live in isolation and that the rest of the world will leave us alone. Countries have tried this in the past, and the rest of the world always sees them as a target. Japan, China, Korea and others. Check out the term isolationism. This is akin to the angry old man who stays holed up in his mansion not interacting with the others in the town and continually yelling at the kids to stay off his lawn.