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Critical Thinking and Observed Trends on the US – China “Trade War”


There is a lot written and said about the US vs. China “trade war” that is politically motivated or at the very least unbalanced. “Businesses are moving to China due to the tariffs.” Really? In some niche cases certainly but there is no mass exodus of manufacturing from North America to China. That businesses are moving to China just does not coincide with what we are hearing and seeing from our clients and network nor is any such trend shown in the available data. Yes there are losers and winners due to the tariffs and some of those losers are US companies, but by no means all. And new businesses such as Tesla continue to set up there. But we are not seeing many existing operations move production into China.


China was no longer the no-brainer location for manufacturing and sourcing even before the tariffs as the costs of manufacturing there have risen dramatically and continue to rise. The risk element to sourcing from China has also increased, tariffs or no tariffs. As pressure mounts for the Chinese government and Chinese companies to play fair political frictions are likely to continue if not increase.


So there are 3 major factors that must be evaluated as part of the China question, of which tariffs are only 1:

1. Tariffs

2. Trend of increasing manufacturing costs and sourcing expenses

3. Risk to intellectual property and political risk.


What we do hear is that CEOs and COOs are actively looking at alternatives to sourcing from China; Vietnam, Thailand, Mexico, the US, etc. And that includes CEOs of Chinese companies. Chinese companies have been setting up shop in Mexico to serve their North American customer base.


Just the most recent example, yesterday, from the global real estate gurus at Avison Young, who assisted a business in their relocation from China to northern Mexico. This is a trend that began in 2018 and is accelerating, though tempered by the volatile behavior of the new president of Mexico, known affectionately as “AMLO”.


Best,

Andrew

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