"Made in China" Soon to be Replaced by "Made in Taiwan"

Mish

Trump inflicted much pain on China and vice versa. This is always the case in trade wars. Sideline beneficiaries abound.

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

Comments (24)
No. 1-13
Six000mileyear
Six000mileyear

Tariffs are not effective unless they are "on the whole damn world."

Runner Dan
Runner Dan

“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!

Aaaal
Aaaal

4D chess in high effect. 4D meaning 4x dumb.

Casual_Observer
Casual_Observer

Taiwan is allied to the US. Maybe China ratchets up tensions in the straits of Taiwan.

Menaquinone
Menaquinone

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.

KidHorn
KidHorn

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.

JonSellers
JonSellers

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?

we_will_be_Ok
we_will_be_Ok

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.

Brother
Brother

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.

lol
lol

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!

RonJ
RonJ

"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?

HubbaBuba2
HubbaBuba2

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.

Sechel
Sechel

taiwan may get some business as in bikes but i don't believe taiwan will get the lion share of business. see more of it going to lower wage countries such as vietnam, cambodia, malaysia


Global Economics

FEATURED
COMMUNITY