The trade war is speeding up tech manufacturers' plans to move out of China, a longtime industry analyst says

GBA managing partner Gregor Berkowitz, as seen in San Francisco on Thursday, May 23, 2019

  • The trade war
    is prompting tech manufacturers to speed up plans to shift
    production out of China, said
    Gregor Berkowitz, a longtime tech industry consultant.
  • Wages have been rising rapidly in the country, taking away one
    of the key reasons many companies set up shop there, he said.
  • The latest threatened tariffs could make Chinese-goods
    significantly more expensive than those made elsewhere, he
  • The big Taiwanese manufacturers are already shifting production
    from China back to Taiwan and are making plans to set up shop in
    Southeast Asia, according to Berkowitz.
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    Insider’s homepage for more stories

The trade war may be hastening the day when China is no longer
the world’s factory.

The country established itself as ground zero for global
manufacturing largely due to its cheap workforce. But wages in the
country for manufacturing workers have been rising rapidly in
recent years and are now at about the same level as those in nearby
Taiwan, said Gregor Berkowitz, a longtime tech industry consultant
who travels frequently to Asia.

With the Trump administration
threatening to impose new tariffs
on Chinese-made goods that
could hit tech products hard, manufacturers — particularly the
big Taiwanese companies that make many of the tech products on US
shelves — are already starting to move production out of the
country, Berkowitz said.

“They are already assertively moving out of China,” he said.

The Taiwanese manufacturing companies are initially looking at
moving production back to Taiwan, Berkowitz said. Because they
already have their engineers and teams in the country, they can get
factories up and running there in about six months, he said.

Read this:
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Manufacturers plan to eventually set up shop in Southeast Asia

Some of the companies have already shifted the production of
server computers to Taiwan, Berkowitz said. But in recent months,
they spoke of shifting their laptop production to the country, too,
if US tariffs on such goods rose to 25%. After already announcing
two sets of tariffs on Chinese goods, the Trump administration
threatened early this month to impose a 25% tariff on some $300
billion worth of additional products from the country. That latest
set of duties would likely cover laptops and other computer-related

Moving “laptop manufacturing is quite a significant deal,”
Berkowitz said.

Both manufacturers and the Chinese government have expected the
country to transition from an export economy focused on making
products for other countries to a domestic consumer-based one. But
the trade war is prodding manufacturers to speed up their timetable
for shifting production elsewhere, he said.

The Taiwanese manufactures plan to eventually move their plants
to Thailand, Vietnam, and Indonesia, Berkowitz said. But that move
will likely take them two to three years, he added.

“They’re building facilities in Taiwan to meet short-term needs
and making plans to make major transitions into Southeast Asia,” he

Initially the companies are shifting the final assembly and
testing of their products out of China, Berkowitz said. Next they
may move over the part of the process that involves putting
components on printed circuit boards. Eventually, they’ll move what
he calls the mechanical process, the making of enclosures and
plastic and metal parts that go into devices.

It’s unclear when or the extent to which the manufacturers might
move the production of the perhaps the most important tech product,
smartphones, out of China. But because it’s such a huge industry
with so few phone manufacturers these days, that move is likely to
take place more slowly than other products, Berkowitz said.

“I think they’re going to be much more strategic and slower in
that process,” he said. “Although I would expect, based on what
I’ve heard, they’ve already started.”

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Source: FS – All – Economy – News
The trade war is speeding up tech manufacturers' plans to move out of China, a longtime industry analyst says