Beijing usually projects its trade war with the U.S. as something it can overcome. Either the Chinese government is hiding their fears under a false bravado or they are simply clueless as to what is actually happening in the business community. Several surveys now show that manufacturing businesses are seriously considering shifting production out of China, a move that will cause long-term unemployment and economic turmoil in the country.
Moving out of China
There are two reasons why businesses want to move out of China. The first is that it allows them to export goods to the U.S. without being charged with the tariffs that are attached to Chinese imports. Secondly, the U.S.-China relationship is so strained that many market experts believe that conflict between the two nations could drag on for several years, eating into business profits over the long term. As such, companies that had previously adopted a “wait and see” approach are now looking at Southeast Asian and Latin American countries as potential manufacturing centers.
“In a recent survey of more than 200 corporate executives by the consulting firm Bain, 42 percent said they expected to get materials from a different region in the next year, and 25 percent said they were redirecting investments out of China. More companies are likely to follow suit in coming weeks after the Trump administration moved to limit business with Huawei, the Chinese telecommunications giant, which the White House sees as a security threat,” according to The New York Times.
In another poll conducted by Baker McKenzie, almost 93 percent of Chinese companies were found to be thinking of changing their supply chains to minimize the effects of American tariffs. Of these, 18 percent were planning a complete change in the production and supply chain. Camera manufacturer GoPro recently announced that they would be shifting some of their production from China to Mexico. Varex Imaging, an X-ray equipment manufacturer from Utah, has also started the process of moving their supply chain out of China.
The development is good news for the Trump administration since it means that the U.S. government was right in going after China with full force. Beijing will soon have to accede to American demands for a fair trade policy or watch businesses leave the country one by one. However, it has not been a full success since Trump’s aim was to eventually shift manufacturing back to America. Since most companies moving out of China opt for Southeast Asian nations as new production centers, the Trump administration has to frame new policies that will lure these companies back to the United States.
Switching to India
With the U.S. government wanting to develop stronger relations with India, many American companies are looking at India as an alternative to China. Just like China, India has a billion-plus population that offers huge opportunities for U.S. investors. To their benefit, India is not an authoritarian state like China, which means that neither the American government nor companies should have any major problems dealing with the Indian government.
In a recent interview, Mukesh Aghi, President and CEO of the Washington-based U.S.-India Strategic Partnership Forum, said that he has received inquiries from almost 200 U.S. companies who are interested in establishing manufacturing plants in India. Foxconn, the Taiwanese manufacturer of Apple’s iPhones, has decided to invest US$300 million in India for manufacturing smartphones. The company is expected to start assembling top-end iPhones in India from next year.