Fearing US tariffs, Japanese companies moving production from China

In a move to dodge paying for current U.S. tariffs on Chinese-manufactured goods, as well as possible future tariffs, several Japanese businesses are moving some of their production lines out of China—as there is no sign of an imminent trade deal between China and the United State

Since U.S. tariffs were first announced in March 2018, Southeast Asian countries such as Thailand, Cambodia, and Vietnam have already become alternative production sites for many tech manufacturers amidst the ongoing trade dispute with Beijing about its alleged intellectual property theft and unfair trade practices.

India is also transforming as a popular alternative to China.

According to a report by Japanese media Nikkei, Ricoh, a Japanese electronics company is planning to shift production of its printers that are shipped to the U.S. market to their existing facilities in Rayong, Thailand from its facilities in Southern City of Shenzhen, China due to the ongoing tensions.

In his alarming tweet last week U.S. President Donald Trump announced an extra tariff of 15 percent on $200 billion worth of Chinese-manufactured goods. Earlier it was 10 percent and this move to increase the tariff to 25 percent has affected many of the Chinese manufacturers adversely

The U.S. Trade Representative (USTR) Robert Lighthizer has already drafted the new list of 3,805 product categories for raised tariffs, to begin the formal process of raising tariffs on the left categories of imports from Beijing, worth approximately $300 billion.

USTR office has set a public hearing for June 17 and a public-comment period that ends on June 24—meaning the new round of U.S. tariffs would be imposed after that date.

According to Nikkei, to determine the future course of action, Japanese printer makers Fuji Xerox and Canon are also closely monitoring developments in U.S.-China trade negotiations and several Japanese machinery manufacturers also made plans to shift production away from China, even before the tweet by Trump for tariff hike.

According to the reports in Japanese media, one of the machinery and equipment manufacturer, Sumitomo Heavy Industries, has already shifted manufacturing of components for its motor reducers from China back to Japan this year.

The report published in Kyodo News further states that giants like Mitsubishi Electric, Toshiba Machine and Komatsu also completed some production shifts away from China in 2018. In addition, Kobe Steel is considering the possibility of moving production of U.S.-bound components for hydraulic excavators from China to Japan, Thailand, and the United States.

India – A next manufacturing hub?

In the drafted proposal by USTR, smartphones are another category of products on the tariff list. As a result, few smartphone manufacturers and suppliers have chosen India as their new production sites.

A Taiwanese company, Wistron, that assembles Apple’s iPhones, received approval from the Indian government in March for a $710 million investment to expand its production facility in India for assembling the latest iPhone models.

Wistron was among one of seven Taiwan-based companies that supply to Apple that expressed interest in November 2018 to shift some of their production away from China due to the Sino-U.S. trade war and possibilities of higher tariffs

Foxconn, another Apple assembler, also diverting production away from China. In March, they announced plans to move production in the Chinese city of Tianjin back to Taiwan. The following month, Company’s chairman Gou told Bloomberg that iPhones will go into mass production in India this year.

Samsung is already investing about $356 million to establish two new component manufacturing entities in India to produce displays and batteries for mobile phones.

In an op-ed in The Economic Times, Gautam Chhaochharia, the head of Indian research at investment bank UBS writes “We expect the significant shift of manufacturing out of China to be a multi-year trend and a potential golden opportunity for India.”

This Trend of moving away from China would continue even if a trade deal is to be signed due to India’s rising attractiveness as a potential manufacturing destination, and growing ease of doing business.

However, all eyes are on the G-20 summit in Japan next month (June), where President Trump and Jinping are slated to meet for talks.