US companies aren’t in a hurry to leave China despite the trade war, analysts say

Home Finance US companies aren’t in a hurry to leave China despite the trade war, analysts say
US companies aren’t in a hurry to leave China despite the trade war, analysts say

U.S. companies aren’t leaving China in a big way yet, despite escalating trade tensions between the two economic powerhouses, analysts said.

“A lot of companies are talking about making changes, but (are) not actively making changes,” said Chris Rogers, research analyst at Panjiva, a supply chain data company that’s part of S&P Global Market Intelligence.

“Nobody’s going to make any changes until they see how this summit goes between President Trump and President Xi,” he said referring to their upcoming meeting at the G-20 summit in Buenos Aires, Argentina on Nov. 30 and Dec. 1.

“(I) haven’t seen any significant U.S. companies leaving China,” Rogers said in a phone interview Friday.

Many hope the G-20 meeting will diffuse trade tensions between the world’s two largest economies, which this summer began to apply additional tariffs on billions of dollars’ worth of each other’s imports.

The tariffs may encourage U.S. companies to step up a trend of increasing manufacturing operations outside China, analysts said. As labor costs in China rise, many companies — including some Chinese firms — are looking toward Southeast Asian countries as new manufacturing centers.

But the desire to look outside China doesn’t mean leaving the country altogether.

Rather than investing more in a Chinese factory, a foreign company may invest more in another country, such as Vietnam, Nick Marro, a Hong Kong-based analyst with The Economist Intelligence Unit, said in a phone interview Friday.

Indeed, a study from the research group found that Vietnam and Malaysia could benefit the most in the long run from a U.S.-China trade war. The two countries have strong infrastructure for supporting distribution, and are well-positioned in the manufacturing of low-end information and technology products and components, the report said.

Thailand also has potential to increase its role as a manufacturing center due to its experience in electronics manufacturing and the government’s efforts to upgrade national infrastructure, the analysis found.

Source: The Economist Intelligence Unit

A spokesperson for the American Chamber of Commerce in Beijing also told CNBC that U.S. companies are staying in China, but they are looking to diversify where their components come from or products are assembled.

Nearly two-thirds of respondents to a survey by the chamber said they are not relocating or considering such a move. Only 13 out of more than 430 companies surveyed are considering leaving China — but rather than choosing the U.S., Southeast Asia is the top destination.

However, companies will likely move slowly. Marro said moving manufacturing operations from China to another country is a process that will realistically take three to five years.

Businesses may also want to gauge the political risks of what signals they are sending when they shift their production centers.

“You have to be careful it doesn’t look like you’re evading tariffs,” Rogers said. “You may see a kind of reputational risk if you were in the Chinese market, then you leave. There’s kind of a negative PR behind that.”

“Companies are not going to make major changes to their supply chain until they’re sure the tariffs are going to be around for the next couple of years,” he added.

The U.S. is set to raise tariffs on $200 billion worth of Chinese goods from 10 percent to 25 percent at the beginning of the new year, a point Commerce Secretary Wilbur Ross reiterated in an interview with Bloomberg last week.

Marro expects the U.S.-China trade tensions to be a relatively long-term conflict. However, he expects U.S. companies will stay in China for another reason – to tap the growing consumer market.

“We’re not expecting to see a massive corporate exodus from China. These U.S. companies have been in the market for years and they’re now aimed at gaining market share,” he said. “If we remember the core concerns over the trade war, they’re really looking at market access concerns. The whole goal of this from the U.S. perspective is not to abandon the region.”