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Companies Flee China Amidst Trade War with U.S.

SubverseJul 19, 2019, 9:40:12 PM

By Tarik Johnson

Major international companies in China are feeling the effects of the high tariffs being imposed by the United States in their on-going trade war. The Nikkei Asian review found that 50 global companies have started the process of pulling production work out of China, and shopping for cheaper locations.

The list of companies include: Apple, Nintendo, Mitsubishi electric, Gopro, Sharp, Panasonic and others. The industries and products range from running shoes, wristwatches and tires to lasers, robotics components and PCs and laptops.

In a statement to the Nikkei Asian Review, Kiyofumi Kakudo, CEO of PC maker Dynabook said, “We need permanent measures to avoid the risk of tariffs and be eligible for U.S. government procurement, Although the fourth round of U.S. tariffs has been temporarily shelved, we cannot tell what will happen nor when.”

In an effort to stem the bleeding, China has been gradually opening up to overseas businesses since 2018. Foreign direct investment into China increased 3.5% on the year to about $70.7 billion for the January-June half, according to China’s Commerce Ministry. On June 18th Reuters reported China would soon announce plans to ease restrictions on foreign investment in several industries such as energy resources, infrastructure, transportation, commerce & logistics and professional services.

Tesla is at the forefront of such government efforts. The company is now moving equipment into its new plant on the outskirts of Shanghai, on which it broke ground just half a year ago. It is hiring workers to staff its lines starting as early as next month.

Although President Trump claimed that the trade war would force companies to leave China and return to the US, most of the companies are looking to move to South East Asian countries, like Vietnam and India. Hewlett-Packard and Dell both plan to relocate chunks of their personal computer manufacturing to Southeast Asia.

Jim Weber, CEO of Brooks Running, which is part of Warren Buffett’s Berkshire Hathaway Inc, said in an interview with Reuters that Brooks would be leaving China in January, when U.S. President Donald Trump was threatening to boost tariffs on shoes to 45 percent from 20 percent. “We’re going to pull most of our production out of China,” he said. “We’ve had to make a long-term decision on this picture. It’s disruptive, but the reality. So we’ll be predominantly in Vietnam by the end of the year.”

The trade dispute is beginning to show up in flows of goods and capital. In the first five months of the year, exports from China to the U.S. fell 12% on the year in value terms, while those from India, Vietnam and Taiwan logged double-digit gains. Exports aimed at bypassing U.S. tariffs by disguising the origin of products may also be increasing.

China’s Statistics Bureau released data on Monday July 15th showing that the countries economy had slowed to 6.2%, the lowest percentage since 1992. “I do believe the trend in China continues to be downward, ” Larry Fink, co-founder of the world’s largest money manager BlackRock, said on CNBC, “I think long term, China knows they need to find ways to stimulate more of their domestic economy.”