China: Larry Sloven arrived in southern China three decades ago, just as the region was taking off as the low-cost manufacturing center of the world. Since then, he has exported millions of dollars of goods, ranging from power tools to LED lights, to some of America’s biggest retailers.
That era may now be coming to an end.
For years, Sloven has seen profits whittled away by rising costs, tighter regulations and Chinese government policies aimed at building a more sustainable and services-oriented economy that have squeezed lower-end manufacturers.
But the final straw may be the prospect of tariffs stemming from a trade war between the United States and China, and a world of more protectionism.
“It’s been step, by step, by step. And it’s been getting more and more expensive to produce products in China,” said Sloven, president of Capstone International HK Ltd, a division of Capstone Companies, from Deerfield Beach, Florida, a maker of consumer electronics goods.
Manufacturers have been feeling the squeeze as China shifts its priorities from lower-end manufacturing to high technology industries as part of a broader bid to upgrade its economy.
But with tariffs looming, “everybody finally woke up to the extent that ‘maybe I should face reality’,” he said. Manufacturers were increasingly worried that “the next group of tariffs would be the killer”.
Sloven is now stepping up efforts to trim his exposure to China, diversifying into growing manufacturing centers like Thailand.
“Thailand, Vietnam, Malaysia and Cambodia are countries that have potential opportunities,” he said. “However, it’s not going to be as easy as many may think. And you don’t know what’s coming next in China.”
Interviews with over a dozen manufacturers from medical device makers to agricultural equipment firms illustrate how companies exporting to the United States are now rethinking their calculations about making goods in China.
“Before the tariffs came on board, we were looking to move about 30 percent of our production from China to the United States,” said Charles M. Hubbs, European director at Premier Guard, a medical products manufacturer, citing reasons such as rising wages, a shrinking workforce and soaring costs.
“With the latest tariff development, assuming those tariffs will go into effect, we’ll probably be moving about 60 percent of our manufacturing out of China to the United States.”
Other companies are closely reviewing their options.”In the current tariff environment, it’s only natural for companies like ours and others to be internally reassessing the impact and taking steps to mitigate that,” said a senior China-based executive with a major U.S. manufacturer.
Moves could include “limiting additional sourcing from China, shifting sourcing to other countries, or bringing work back to the United States”.
Mid-level officials from the two countries are set to hold trade talks this week in Washington, although the gap between the two sides over U.S. demands for greater market access remains wide.
