With the threat of tariffs looming at 25 percent, U.S. consumer-goods companies with China-based manufacturing facilities are scrambling to find alternative suppliers in other countries. Some experts liken the situation to a game of musical chairs where companies are rushing to find a manufacturer outside of China before the 25 percent tariff hike goes into effect in 2019.
Majority of U.S. companies say tariffs have hurt their business.
More than 70 percent of U.S. companies operating in areas of China, where consumer product manufacturing is heaviest, are considering moving production to countries not caught in the crossfires of the U.S.-China trade war. That’s according to a survey of 219 companies by the American Chamber of Commerce in South China, a U.S. Chamber of Commerce-affiliated nonprofit that represents 2,300 American businesses in China.
Ten percent of these companies estimated annual losses exceeding $250 million, and 80 percent said tariffs have hurt their business.
The survey was conducted in the weeks shortly after the U.S. imposed a 10 percent tariff on $200 billion worth of Chinese goods. Beijing retaliated by imposing tariffs on $60 billion of U.S. goods. The 10 percent tariff on Chinese imports began on September 24, and on January 1 next year, tariffs will reach 25 percent.
Current trade climate poses multiple threats to U.S. companies.
The survey makes clear that the escalating trade war between the U.S. and China is jeopardizing profit margins and U.S. companies’ ability to compete, as vendors are forced to absorb cost increases or raise consumer prices.
In an attempt to stem the tide, U.S. companies are mobilizing to reconfigure their supply chains and relocate production.
Attempts to bypass tariffs via appeal pose difficulties.
Thousands of companies have tried to bypass the tariffs by appealing to the U.S. Customs and Border Protection to reclassify their products, but this process is can take several years.
What’s more, even U.S. companies that have deliberately planned ahead to avoid logistical pain points by securing capacity for the peak season are encountering disruptions that many suppliers didn’t anticipate.
For these reasons, U.S. companies’ best option to avoid or mitigate losses is to either resource materials or relocate production to avoid tariffs.
Competitive solutions lie in reconfiguring supply chains.
While successful companies always keep a close eye on supply chains to ensure their efficiency and competitive edge, very few have engaged in contingency planning to offset their vulnerability to tariffs.
The question many companies now need to ask themselves is how to turn their supply chain from a necessary evil to a competitive advantage by relocating production.
At Pivot International, we’re helping U.S. companies successfully answer this question. As a single-source designing, engineering, and manufacturing company with facilities in Taiwan and Manila, we’ve already helped many large and mid-size companies find competitive solutions to the problems posed by the current trade climate. If your business is faced with the production liabilities of looming tariffs and is seeking a viable alternative to your current supplier, contact us today.