Are tariffs against China bringing factories and jobs back to the U.S.?
Originally published by USA Today on July 14, 2019.
Article by Yan Zhang.
The tariffs that President Donald Trump has slapped on Chinese imports haven’t sparked the widespread return of manufacturers to the U.S. that Trump envisioned.
About 41% of American companies are considering moving factories from China because of the trade war, or have already done so, but fewer than 6% are heading to the U.S., the American Chamber of Commerce in China said in a recent survey.
Companies are largely eyeing Southeast Asia and Mexico.
Steve Madden, the footwear and handbag maker, shifted its production to Cambodia. GoPro, the mobile camera maker, has its sights on Mexico. Gap, the clothing and accessories retailer, has started up new factories in Indonesia, Vietnam and Bangladesh. Brooks Running, a running shoes and clothes maker, said they’ll move 8,000 jobs from China to Vietnam by the end of the year.
The White House was not immediately available for comment.
Trump tweeted Friday morning “Companies will relocate to U.S.” and “If the Tariffs went on at the higher level, they would all come back, and fast.”
Manufacturing added 28,000 jobs the first half of the year, the fewest during that period since Trump took office promising a manufacturing renaissance.
So why aren’t U.S. manufacturers bringing jobs back to the U.S. in droves?
“There are no viable alternative manufacturers located in the United States,” James Osgood, CEO and president of Klean Kanteen, a maker of stainless steel water bottles, said at a hearing late last month on Trump’s proposed tariffs on $300 billion in Chinese imports that have since been put on hold.
“It would likely take five to seven years to build the capital-intensive infrastructure, develop and train personnel … and implement such domestic production capability,” Osgood said. “Klean Kanteen does not have the working capital or profitability to cover loses for that amount of time.”
Various companies testified that there is an entire supply chain in China to support their production, but no equivalent network in the U.S.
American job gains have increasingly been concentrated in service-providing industries instead of manufacturing, the Peterson Institute for International Economics said in a recent report.
“A skills mismatch – the gap between the skills workers have and the skills employers need – causes (manufacturing) job vacancies to remain unfilled for longer periods,” Richard Hernandez, economist for the Bureau of Labor Statistics, wrote in an article in August.
Wages and dollars
While the gap between U.S. and Chinese factory wages has narrowed in recent years, pay for American manufacturing workers has risen faster than gains in productivity, or output per worker, according to a recent report by Boston Consulting Group. That means the U.S. is still relatively expensive.
And the strength of the dollar “has made U.S. goods more expensive abroad and imports cheaper” in the U.S., the study said.
For low-cost manufacturing, Southeast Asian countries and Mexico are cheaper. The average monthly factory wage in the U.S. is more than $3,200, compared to $237 in Vietnam, $188 in Indonesia, $425 in Thailand and about $400 in Mexico , according to the data by Trading Economics.
Countries such as Cambodia, India, Indonesia and Thailand are given preferential treatment by the U.S. in trade to help developing countries grow their economies. That means many products from these countries can be shipped to the U.S. duty-free.
Near China, for China
Many American companies “are in the process of diversifying the supply chain” away from China, says William Zarit, former minister for commercial affairs at the U.S. Embassy in Beijing and senior counselor of Cohen Group, a business advisory firm for American companies running businesses in China. “They are either doing it, or in the process of deciding how to do it, when to do it, where to go.”
But they don’t want to venture far from China because it’s the world’s second-largest economy and biggest single market for many businesses, with 1.3 billion consumers.
For example, Columbia, a sportswear producer, owns more than 700 retail locations in China, one of its largest foreign markets.
“Having local production helps us remain competitive in the local China market, which in turn supports U.S. based innovation jobs,” says Katie Tangman, the company’s global customs and trade director.
“It’s logical to move to Southeast Asia or maybe India, and we can still serve this market from there,” Zarit adds. “That’s why there aren’t a lot of companies planning on moving operations back to the U.S.”