US companies are scrambling to line up factories and suppliers outside of China as the US-China trade war hikes the cost of importing everything from furniture to toilet paper, but for some products, it is not that easy.
Barbecue grills, luggage and mattresses are among a long list of consumer items that China has a near stranglehold on when it comes to supplying the US.
While US President Donald Trump’s tariffs are a potential boon for manufacturing rivals from Southeast Asia to Mexico, the reality is that shifting what can often be highly-specialized production and training new workers cost time and money.
“People are moving out of China because they are panicked,” American Apparel & Footwear Association president Rick Helfenbein said in an interview in Hong Kong on Tuesday, but added: “Certain things are really, really hard to move.”
That has retailers from Walmart Inc to Target Corp anxious about tariffs announced last month on US$200 billion of Chinese exports, which Trump has said would be increased from 10 percent to 25 percent next year.
The Retail Industry Leaders Association, which counts Apple Inc and Home Depot Inc as members, is seeking exemptions to the levies on a raft of products as companies warn that without a reprieve, they are almost certain to pass on costs to US shoppers.
That hike is already being felt in the market for luggage, with Samsonite International SA notifying wholesale buyers of a 10 percent price increase even before last month’s tariff announcement.
The company has said it would likely pass tariff costs to consumers.
China makes more than 70 percent of the travel and sports bags sold in the US, making it one of the sectors most dependent on the Asian nation for supply, according to data from the US International Trade Commission (ITC), a federal agency in Washington.
There is “no way” US importers and sellers of travel goods can avoid the new tariff, said Michele Marini Pittenger, president of the Travel Goods Association, which estimates the industry’s total reliance on China at 84 percent.
“Product is not easily moved, as other countries don’t have the capacity, or the capability, to produce what is made in China today,” she said.
There are some products where China is even more dominant. The US imported US$353 million of bikes with 25-inch-or-less wheels last year, with 92 percent of those coming from China, the ITC said.
About 90 percent of the world’s LED lighting comes from China, according to Morgan Stanley, and 85 percent of US imports of frozen tilapia fillets come from Chinese fish farms.
Trump says US companies worried about the tariffs should move their production home, while a number — from power converter maker Vicor Corp to climate-control systems company Lennox International Inc — are looking at shifting their supply chains elsewhere.
However, finding other locations to establish production of items that have been so dominated by Chinese manufacturers is difficult, Helfenbein said.
Some companies cannot move because of the challenge in finding manufacturers outside China willing to put up with the narrow margins and stringent requirements involved in producing them, he said.
“You have to think of it from the factory perspective: You want to do what’s easiest, you don’t want to do what’s hardest,” Helfenbein said. “The only reason these businesses have hung around is people who have been in them for years are specialists.”
If Trump extends the tariff hit to cover a further US$267 billion in Chinese goods, children’s shoes, baby clothes and sweaters would be among items that would be hard to shift production or source elsewhere, the American Apparel & Footwear Association said.
Manufacturers of children’s products like cribs and swings have also weighed in, with Mattel Inc saying they made investments in China to ensure suppliers comply with safety standards required to get their products into the US market.
Large retailers including J.C. Penney Co and Dollar Tree Inc warned before last month’s tariff hit that companies lack feasible alternatives to China-based suppliers, saying that rerouting decades-old supply chains could take years.
Smaller businesses also lobbied the Trump administration, according to comments submitted to the Office of the US Trade Representative before last month’s tariffs were enacted:
While the 10 percent tariff might be manageable for many companies — even those operating on thin profit margins — the increase next year would see companies lose the flexibility to shield consumers from higher costs, American Chamber of Commerce in Shanghai president Kenneth Jarrett said.
“Once you get the 25 percent tariff, that will be well beyond their profit margin,” Jarrett said. “They will have no choice but to pass those costs on.”
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