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“Made in China” Soon to be Replaced by “Made in Taiwan”

Summary:
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

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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

Mike Shedlock
Mike Shedlock (Mish) is a registered investment advisor representative for SitkaPacific Capital Management (http://www.sitkapacific.com/). Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

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