Despite the fact that President Donald Trump and Chinese President Xi Jinping have negotiated a temporary cease-fire in the trade war, many major tech companies are moving ahead with plans to close down factories in China and relocate them elsewhere.
The future of U.S.-China trade relations is still murky enough, and the first round of tariffs continue to bite hard enough, that companies from U.S. PC giants HP and Dell to software and service-based Amazon, Google, and Microsoft are committed to pulling out of China. These are only the latest companies signaling that they are going through with the manufacturing move. Before the trade truce was reached at the G20 summit, Apple previously announced that it is looking into relocating 15 to 30 percent of its current China-based manufacturing.
This may incidentally align with Trump’s strategy of putting pressure on China for more favorable trade terms, but it remains highly unlikely that it will drive his “reshoring” initiative to bring manufacturing jobs back to the U.S.. There are more than a few reasons for this, the biggest of which is that manufacturing in the U.S. still costs a lot. Attempting a pivot to U.S. manufacturing on a large scale would lead to a radical explosion in the price of devices. It would also mean having to fundamentally reconfigure shipping logistics, which major tech players would rather avoid. And, of course, it would also cast huge ripples through U.S. trade balance sheets, which, while not a direct concern to U.S. tech firms, would probably lead to stock market instability.
So where would these companies set up their manufacturing shops, then? Some signs point to Vietnam, as it is geographically close to China and has a cost of living that’s on par with China’s, which would translate to a low cost of labor. It may also make tech companies more comfortable knowing that Vietnam is nominally part of an international trade framework designed to counterbalance China in the region. Vietnam does have its downsides as a new U.S. manufacturing base. For one thing, it is within China’s sphere of influence, which might tempt China to put pressure on its smaller neighbor. More immediately, Trump is mulling over imposing tariffs on Vietnam, which could make the country as expensive to do business with as China in the long-run.
Another appealing tech manufacturing home could be India. It is a close U.S. ally in Asia, meaning that tech companies can count on the U.S. ensuring that its position is stable. On the other hand, India’s middle class is growing quickly, meaning factory jobs, with their relatively limited income, are quickly becoming less appealing to many Indians. In fact, this is the same reason that U.S. manufacturing has been trickling out of China for years.
Wherever U.S. tech firms ultimately decide to build their devices, the cost to American consumers isn’t insignificant. Even if these companies all find alternative manufacturing bases for the same cost as before (which isn’t guaranteed), there are costs associated with applying for new permits, building new facilities, rerouting supply lines, and performing quality testing. All of this will be passed onto U.S. consumers. If tensions rise between the U.S. and China, it may prove worth it in the end, but in the meantime, U.S. consumers are literally paying for this shake-up.
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