After enduring nearly a year of the U.S.-China trade war, a growing number of corporations are moving operations, breaking global supply chains into regional networks and shelving planned investments.
The corporate actions reflect a realization that even if President Trump and Chinese President Xi Jinping strike a bargain, friction-free trading between the two countries is likely a thing of the past. At least some of the president’s more than $250 billion in tariffs on Chinese products are likely to remain in place indefinitely, according to several trade analysts.
“It is dawning on them that the tariffs might not come off,” said economist Mary Lovely of Syracuse University’s Maxwell School of Citizenship and Public Affairs. “Companies are saying . . . these things we thought would be temporary will be permanent.”
Senior U.S. and Chinese officials are scheduled to meet Thursday in Beijing in hopes of paving the way for a deal that averts Trump’s threat to raise tariffs on $200 billion in Chinese products to 25 percent from 10 percent on March 1.
Any agreement, which awaits an as of yet unscheduled meeting between the two leaders, will come too late for manufacturers that have stopped waiting for the world’s two largest economies to patch up their differences. As export orders wobble, many Chinese factories have begun producing more for the growing domestic market, and Chinese authorities intend to reduce their dependence upon American customers they now regard as fickle.
Over the past year, Trump — who famously describes himself as “a Tariff Man” — has imposed three sets of tariffs on China plus separate levies on imported steel and aluminum. None have been lifted, even those on Canadian and Mexican metals, which the administration promised to eliminate when a new North American trade deal was reached.
Since the ratcheting up of trade barriers began on March 22, companies have been whipsawed by multiple rounds of talks intended to settle the conflict and Trump’s periodic threats to escalate it, including by tariffing all $505 billion in Chinese products entering the United States.
At the White House on Tuesday, Trump sounded optimistic about prospects for a negotiated solution. “Things are going well with China. China wants to make a deal very badly,” he told reporters.
While any accord would presumably forestall the threatened tariff increase to 25 percent, it’s not clear if the current 10 percent levy would continue. Some officials have suggested that it remain in place to encourage China to implement promised reforms designed to address U.S. complaints about compulsory or illicit efforts to acquire American technology.
The president also suggested that if negotiators are close to a deal by March 1, he might let the deadline “slide for a little while.”
Such uncertainty has been unavoidable for companies caught between the United States and China.
The apparel and footwear industry dodged the worst of the first round of tariffs only to see products such as backpacks, handbags, gloves and coats caught in the latest salvo.
Some retailers have begun the lengthy process of switching their orders from Chinese factories to suppliers in other Asian countries, said Rick Helfenbein, president of the American Apparel and Footwear Association.
“This is going to be a fact of life for the next 10 or 20 years,” he said. “Once you go, you don’t go back.”
The corporate shifts come amid evidence of accumulating economic damage. U.S. exports to China have dropped for four consecutive months compared with 2017 figures, according to the Commerce Department. Through the first 11 months of last year, the United States ran up a record $382 billion trade deficit — larger than the 12-month figure for 2017.
While technology is at the core of the trade fight, the fallout is spreading to more prosaic industries. The latest list of Chinese goods to be hit with 10 percent tariffs in September included “tuna loins,” a blow to Bumble Bee Seafoods, which operates plants in Sante Fe Springs, Calif., and Cape May, N.J.
In September, the company, which employs more than 500 Americans, warned the office of the U.S. Trade Representative that the import levy could lead to a “factory closure” and higher consumer prices. The tariff — and the president’s threat to raise it to 25 percent on March 1 — also prompted the company to shelve plans for a job-creating expansion in California, according to David Melbourne, senior vice president for industry and government relations.
Bumble Bee imports raw tuna from a cleaning facility in Ningbo, China. Before the tariffs, the company planned to shift work on some ready-to-eat tuna products from a site in southeast Asia to California.
“We wanted to bring it home,” Melbourne said in a telephone interview. “We were looking to build out jobs . . . Even at 10 percent, there’s no investment we’d be able to make domestically.”
Other manufacturers are recasting their supply chains for a more balkanized global economy. Philips, a health technology company, said last fall that it would localize its supplier network in response to growing U.S.-China protectionism.
To reduce its exposure to new trade barriers, Philips factories in China, the United States and Europe will increasingly produce a variety of products for their home market rather than specialize in a particular product to be shipped globally.
Philips estimates that it will spend more than $60 million this year adjusting its supply base for the more fragmented economic landscape it expects will persist.
“We are not gambling or hoping that this will suddenly disappear, right?” Philips CEO Frans van Houten told analysts on a Jan. 29 call. “So we are rearranging our supply chains; we take measures with suppliers . . . It’s a lot of work actually, but we are putting in all that effort because we are not immediately so optimistic that it will go away.”
Companies are moving their orders from Chinese factories to southeast Asia and Mexico, according to Qima, a Hong Kong-based supply chain specialist that advises major brands and retailers. Client requests for inspections rose by 50 percent in Cambodia and Indonesia, 38 percent in Bangladesh and 19 percent in Vietnam, said Sebastien Breteau, the company founder and chief executive.
“They may make a deal now, but we won’t have the golden era again,” said Breteau, referring to the trade talks. “We are never going back to the way we were.”
The president says his tariffs on imported goods will bring lost manufacturing jobs back to the United States. But the import levies may also be encouraging some American research and development work to move abroad.
Linton Crystal Technologies, a Rochester, N.Y., maker of industrial furnaces, says Trump’s tariff war is forcing it to move its research and development work to China. Only a handful of American jobs will be lost. But the shift means that future job-creating innovations will sprout in Dalian, a seaside Chinese city, rather than in Rochester, said Todd Barnum, the company’s chief operating officer.
The company’s 30-foot tall furnaces, costing almost $1 million each, generate towers of silicon, which are then sliced into thin wafers used to produce computer chips and solar panel cells.
Barnum, who signed on in 2016, has doubled revenue and grown the workforce to around 40. Before the president slapped tariffs on Chinese goods, he planned to invest in a new building in Rochester and hire a minimum of five workers.
Now instead of paying the tariff to bring a new $2 million prototype to Rochester, Barnum will leave it in Dalian.
Barnum says he can’t comply with Trump’s call for companies to produce in the United States. Most of Linton’s customers are in Asia. Plus, even if he could afford to produce new furnaces in Rochester, by the time he tooled up to do so, they would be obsolete in the fast-moving chip business.
“I’m not ruining the company over this,” he says of the tariffs. “The decision was pretty easy.”
By David J. Lynch