64% of Firms Doing Business in China Consider Relocation, Only 1% to N. America

Trump's tariffs are taking a huge bite on corporate profits, but the US will not benefit at all.

Reuters reports Many U.S. Firms in China Eyeing Relocation as Trade War Bites.

> U.S. companies operating in China believe they are suffering more from the trade dispute than firms from other countries, according to the poll by the American Chamber of Commerce in South China, which surveyed 219 companies, one-third from the manufacturing sector.

  • More than 70 percent of U.S. firms operating in southern China are considering delaying further investment there and moving some or all of their manufacturing to other countries as the trade war bites into profits.
  • Sixty-four percent of the companies said they were considering relocating production lines to outside of China, but only 1 percent said they had any plans to establish manufacturing bases in North America.
  • Nearly 80 percent of the survey respondents said the tariffs have knocked their businesses, with U.S. tariffs having slightly more impact than the Chinese ones.
  • One-third of companies estimated the trade dispute had reduced business volumes ranging from $1 million to $50 million, while nearly one in 10 manufacturers reported high-volume business losses of $250 million or more.
  • Nearly half the companies surveyed also said there had been an increase in non-tariff barriers, including increased bureaucratic oversight and slower customs clearance.

Two-Way Pain

It's clear that Trump has managed to inflict some pain on China.

It's equally clear that US companies doing business in China are also suffering.

Winning

This we call "winning" even though almost none of that business is headed for the US, or even North America.

Rather, Vietnam, India, and other emerging markets will benefit.

Mike "Mish" Shedlock

Comments (10)
No. 1-7
Kinuachdrach
Kinuachdrach

This is early days in the fight-back against China's long-running trade war against the US. For an objective viewer, this report does not sound bad.

First, businesses are considering moving jobs & tax revenues out of China. After the usual chorus has died down, that is likely to make the Chinese authorities more interested in finding a mutually satisfactory solution to the trade imbalance with the US. Remember -- the reason for tariffs is to bring the Chinese to the negotiating table.

Second, US (and global) supply chains will be diversified away from over-reliance on China. Everybody is likely to benefit from the resulting increased competition.

Third, the benefits of manufacturing industry will be spread to countries which sit today where China did 20 or 30 years ago. More human beings in more places will be lifted out of poverty.

Sechel
Sechel

if u.s. companies are in china to tap into the local market they are not leaving. if they were using china as low cost manufacturing in order to export back home well wages in China have been rising for some time so those companies would have been considering moves to Vietnam, Malaysia , Taiwan etc for some time. The current environment may simply be accelerating the trend or giving megaphone to those conversations.

I have no doubt that u.s. firms are getting hurt but I don't see they have too much choice. If they want to sell to China they need to be there. If they need to source from China it will take time to figure work-arounds and not every country has the infrastructure required to support a move.

Blacklisted
Blacklisted

The trend of low cost labor moving from China to cheaper areas like Vietnam has been underway long before Trump. So has the trend of increasing corruption and govt largess that will eventually drive the financial capital of the world to China after 2032. Trump is a symptom of the root problem - career politicians, but you choose to focus on symptoms.

Realist
Realist

Completely agree Mish. Tariffs are a self-inflicted wound.

Sechel
Sechel

If I were an American multi-national splitting the company would certainly be an option to isolate that section of the company working overseas. Trump unfairly interfering in normal capitalism.

JL1
JL1

US companies profits will be lower for companies which have gotten larger profit margins by outsourcing and moving production to China.

US workers will benefit over the long term.

Refuztosay
Refuztosay

Mish - I get the focused David Recardo / Adam Smith view on economics but you have to consider strategic factors. China is a nation governed by thieves, liars, and cheats. They are not our friends - they are corrupt competitors at best and a long-term enemy in all likelihood. So, yes - in your world of perfect competition and free and frictionless trade - we could theoretically benefit from no tariffs. But that is not the world we live in - and - if you consider yourself an American - you have to do something to reign in China. If some companies move to Vietnam from China - and we don't see the jobs that's fine - because we have reduced our dependency on a bad actor and reduced the industrial might and technology advantage that China will (already is using) use against the USA. The USA is not perfect - but following your advice we'll end up with China on top and we've all seen how that works out (like 100m dead people in Russia's question for Marxist utopia.) As always - keep up the great work - and my request is for you to at least try and see the broader picture of risk.