The US Department of Commerce this year published a report on reinvesting in the US, highlighting the experiences of six companies moving production to America. The report makes the case “that anecdotal evidence of hundreds of reshoring cases is very real”, but it also admits that tariffs are a “challenge” for companies wanting to move production to the US, with half the companies highlighting the harm of tariffs on investment decisions.
Quality Electrodynamics, an Ohio-based company that designs and produces parts for medical devices, “recommended that the US government could promote reshoring and expansion in the US by revising US tariffs on Chinese components in a way that does not disadvantage US companies”.
Those working to find ways to increase reshoring say the tariffs are making it harder for companies to make decisions on where, or even whether, to add capacity.
Clearly Trump caused work to come here more by the things he did on taxes than by pounding on the table with tariffs. The uncertainty caused by the tariffs are hurting reshoring and foreign direct investment
Harry Moser of Reshoring Initiative
Harry Moser, president of the Reshoring Initiative, said he agrees with the goals of Trump’s tariffs, but said they have had a “modest net negative” effect on jobs coming back to the US as companies look elsewhere to relocate production.
Based on the Reshoring Initiative’s own study, 2018 was a successful year, but that progress has already dropped off in 2019.
“Clearly Trump caused work to come here more by the things he did on taxes than by pounding on the table with tariffs,” Moser said. “The uncertainty caused by the tariffs are hurting reshoring and foreign direct investment.”
Trump’s trade chief, US trade representative Robert Lighthizer, acknowledged recently that tariffs were diverting some production to the US but also to other countries.
“The imposition of tariffs can have many effects, including modifications to supply chains,” he wrote in a response to questions from the US Congress on whether tariffs are benefiting producers in other countries. “I have closely followed reports of manufacturing coming back to the United States from China or going to third countries in some instances.”
Sebastien Breteau, the CEO of the Hong Kong-based supply chain inspection company Qima, said the data his firm collects supports the theory that neither China nor the US is winning the trade war. The firm, which has 6,000 clients worldwide, has seen a 13 per cent drop for China-based inspections from US companies.
Meanwhile, inspections for US clients increased 21 per cent in Vietnam, 25 per cent in Indonesia, 15 per cent in Cambodia, and by a staggering 119 per cent in Mexico, in the first six months of 2019.
“There is a clear sign that in the trade war between the US and China, the winner is not going to be the US and it’s not going to be China,” Breteau said. The winners are “going to be Vietnam,Indonesia, Cambodia and very likely Mexico and Bangladesh”.
The Qima data is supported by a recent report from consulting firm AT Kearney, which found that imports from low-cost Asian countries in 2019 outpaced US manufacturing output.
A report by investment firm China International Capital Corporation released in July estimated that across eight manufacturing sub-sectors in China, the first two batches of tariffs from the US would likely result in 1.5 million job losses in China. The authors said that looking across the whole manufacturing sector, “this estimate may be low”.
However, there is little evidence to suggest that many of these jobs are flocking to the US.
George Whittier, CEO of Morey, a Chicago-based custom electronics manufacturer, said his company still relies on imported parts to make GPS tracking devices and controllers for vehicles. Most of those components imported from China are subject to tariffs, but the finished products are not – resulting in more time being spent haggling over costs with existing customers than expanding production and jobs.
Whittier also questioned whether the US labour pool could absorb a major increase in manufacturing as he is unable to fill 15 positions despite raising salaries twice.
“If there was this big boom of manufacturing coming back from China into the US, I gotta be honest, I have no idea where the workers are going to come from,” he said.
Kamler, of Kent International, said previous discussions with the Trump administration had been frustrating because of a perspective that only goods made from “start to finish in the US” count as “real” domestic manufacturing. But he added that recent talks with the US Department of Commerce had been more fruitful.
Kamler has formed a coalition of 12 American companies in an attempt to bring an entire supply chain cluster back to the US. If the alliance can prove that it is assembling entire bicycles, it would “be able to import all the component parts for five years, duty free”, Kamler said.
But the tariffs will only be removed if the alliance can prove that it could increase US bicycle assembly from 600,000 annually to 4 or 5 million. Kamler said the industry would ultimately have to seek permanent relief from tariffs through legislation, which he said is in the early stages of being developed.
“These things don’t happen so fast, but this is a long-term play and this is actually my hope and part of my legacy that I’m hoping to leave, that I can help bring back the American bike industry,” he said.
For other companies, the threat of intellectual property (IP) theft, and not tariffs, has driven decisions to relocate production to the US.
MGA Entertainment, the world’s largest privately owned toy company, reshored production of fashion accessories for its line of LOL Surprise! Dolls under its Little Tikes brand to an existing plant in Hudson, Ohio, in a bid to avoid fake versions of its products from being sold to consumers.
“The biggest problem we face in China is the theft of IP. There are over 200 factories in China that make LOL Surprise! counterfeit products and very little can be done about it,” CEO Isaac Larian said. “These counterfeit products are unsafe for children.”
He said MGA had tested moving the production of one item to the US and found it was successful, and now plans to move more, with toys made in China among the items subject to a 10 per cent tariff as of December 15.
“It will definitely affect business due to lower sales, and we are looking at options” to move more manufacturing out of China, he said of the tariffs, adding that “it is too late for this year”.
I still have hope that the 10 per cent won’t hit, but we are prepared for it and have already spoken to customers. They’ve increased the quantities of their orders, so that helps
Timothy Stuart, of Unit Bricks
Another toy seller, Unit Bricks, examined moving production to the US by pricing out the plastic elements of its production as well as packaging. But the company decided it was unaffordable at this stage because profit margins on toy sales are too thin to justify the costs of relocating production to the US.
“Everything is about margins,” said Timothy Stuart, the owner of the educational toymaker. “The issue with the US is that labour-intensive items become too expensive.
“All production is in China for us: plastic, wood, packaging. Industry follows labour, and America can’t afford cheap labour.”
With the threat of new tariffs looming in September and December, Stuart said that his business could absorb a 10 per cent levy, but should it rise to 25 per cent, “we would have zero choice at that point” but to leave China.
“Frankly, I still have hope that the 10 per cent won’t hit, but we are prepared for it and have already spoken to customers. They’ve increased the quantities of their orders, so that helps,” added Stuart.
Should things escalate, the US and Poland are both active options, he said, but due to the higher cost, “the US is the last resort”.
Adam Behsudi reports for POLITICO from Washington. Finbarr Bermingham reports for the South China Morning Post from Hong Kong
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