Manufacturers Move Supply Chains Out of China -- Update
July 14 2019 - 7:27PM
Dow Jones News
By Austen Hufford and Bob Tita
U.S. manufacturers are shifting production to countries outside
of China as trade tensions between the world's two biggest
economies stretch into a second year.
Companies that make Crocs shoes, Yeti beer coolers, Roomba
vacuums and GoPro cameras are producing goods in other countries to
avoid U.S. tariffs of as much as 25% on some $250 billion of
imports from China. Apple Inc. also is considering shifting final
assembly of some of its devices out of China to avoid U.S.
tariffs.
Furniture-maker Lovesac Co. is making about 60% of its furniture
in China, down from 75% at the start of the year. "We have been
shifting production to Vietnam very aggressively," said Shawn
Nelson, chief executive of the Stamford, Conn., company. Mr. Nelson
said he plans to have no production in China by the end of next
year.
The moves by U.S. companies add up to a reordering of global
manufacturing supply chains as they prepare for an extended period
of uneven trade relations. Executives at companies that are moving
operations outside China said they expect to keep them that way
because of the time and money invested in setting up new facilities
and shifting shipping arrangements. Companies said the shifts
accelerated after the tariff on many Chinese imports rose to 25%
from 10% in May.
"Once you move, you don't go back," Mr. Nelson said.
Yeti Holdings Inc. said it plans to move most production of
soft-sided coolers out of China by the end of this year. iRobot
Corp. said it would start a new Roomba production line in Malaysia
this year. Crocs Inc. said it expects less than 10% of U.S.-bound
products to be made in China by next year, down from 30% in June.
And diesel-engine maker Cummins Inc. said it has avoided $50
million in tariff expenses by moving some production to India and
other countries.
Imports from China fell 12% in the year through May, compared
with a year earlier, according to the U.S. Census Bureau, the
biggest decline since the financial crisis a decade ago.
The biggest beneficiaries of that decline have been other
countries in Asia where production costs are low, such as Vietnam,
India, Taiwan and Malaysia. Many of those countries have recorded
sharp increases in exports, although there have been allegations
that some of the added traffic stemmed from goods made in China
that were routed through those countries without significant
alterations to avoid tariffs.
U.S. imports from Vietnam are expected to reach $64.8 billion
this year, up 36% from 2018, according to consulting firm A.T.
Kearney.
"We're moving production to other parts of the world," Marvin
Edwards, CEO of CommScope Holding Co., said in June. The Hickory,
N.C., company is making antennas for sale in the U.S. at its plant
in India instead of China.
There is little evidence, though, of U.S. manufacturers bringing
production from China back to the U.S., a move the Trump
administration hoped the tariffs would encourage.
While imports from other Asian countries have climbed, U.S.
manufacturing output has declined 1.5% through May from a recent
peak reached in December, according to the Federal Reserve. The
Institute for Supply Management said earlier this month that its
manufacturing index slipped again in June to the lowest level since
2016.
"If we were to try to do a factory in the U.S., it would be
enormously expensive," said John Hoge, co-owner of Sea Eagle Boats
Inc., which makes 85% of its inflatable kayaks, canoes and fishing
boats through contract manufacturers in China. Mr. Hoge said the
network of manufacturers and suppliers in China that makes boats
for Sea Eagle and many of its competitors isn't as comprehensive in
any other country.
"It took us 20 years to build up the supply chain in China," he
said. Mr. Hoge estimated the 25% duty on his products that took
effect in May would double the Port Jefferson, N.Y., company's
tariff expenses to about $500,000 a year.
Crown Crafts Inc. analyzed manufacturing costs in a half-dozen
countries before deciding to keep making its baby blankets in China
despite the tariff costs. "It's very difficult to find a country
that can do it competitive with China," Randall Chestnut, CEO of
the Louisiana company, told analysts in June.
More than 100 companies have asked the Commerce Department to
waive the latest 25% tariff on their imports because they said they
can't find suppliers outside of China.
One is Zoom Telephonics Inc., which said it lost $1.1 million
during the first quarter and likely more in the second as a result
of the tariffs on the cable-television modems it imports from China
and sells through Amazon.com Inc., Best Buy Co. and other
retailers. "I don't think anybody makes them in the U.S.," said
Frank Manning, CEO of the Boston-based company, in an interview.
"We're bleeding."
Write to Austen Hufford at austen.hufford@wsj.com and Bob Tita
at robert.tita@wsj.com
(END) Dow Jones Newswires
July 14, 2019 19:12 ET (23:12 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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