Continued Trump Tariffs May Drive Large Tech Firms Away From Mainland

US China Trade Dispute
An employee works at a production line at a Wanxiang electric vehicle factory in Hangzhou (Photo: Reuters / Aly Song)

Despite agreeing to a ceasefire in the implementation of additional tariffs, US President Donald Trump's already imposed tariffs are still wreaking havoc to businesses in China.

The 25 percent tariffs on products being exported to the United States has all but wiped out the cost advantages of foreign firms establishing manufacturing facilities in the mainland.

While other companies have already made plans to establish new facilities in other Southeast Asian countries to escape Trump's tariffs, some have decided to stay in hopes that the tariffs may one day be lifted when China and the United States finally come to an amicable trade deal.

Most companies, however, are not so optimistic and have already made backup plans for a worst-case scenario.

According to a report from Citibank, which was published Thursday, the next batch of companies to exit China may be large tech firms. The exodus of these companies will reportedly result in millions of Chinese jobs lost.

Major tech-related business in China employs millions of people in various facilities across the mainland. Most of these companies are involved in the development and manufacturing of electronics and communications equipment and components.

A report from China's Ministry of Commerce previously estimated that industries involved in the manufacturing of computers and electronic components will be the second most affected by Trump's recently imposed tariffs on more than $250 billion worth of Chinese products.

A research conducted by China International Capital Corp (CICC) estimates that the tariff hike that was imposed in May will account for around 18.7 percent of the affected companies' total profits.

Citibank estimates that if the increased tariffs on Chinese good continue, a significant amount of tech firms could exit China in the next few years. This could lead to millions of lost jobs and billions of dollars in losses for China's economy. Citibank's report does closely match a recent poll conducted by accounting firm PwC.

The poll showed that 40 percent of major tech firms in the mainland are in fact considering large shifts in their respective supply chain given the current trade situation.

One of the first companies to announce a change in its supply chain was Foxconn. The Taipei-based electronics firm, which assembles iPhones in China, announced last month that it was going to be moving some of its productions facilities outside of China. Reports have speculated that the company could be moving its production for the US market to India within the year.

According to some firms, the advantages of cheap labor, electricity, and land in China has been eradicated by the recent tariffs. Moving out of the country, therefore, makes a lot of send for these companies, who fear that further escalation in the ongoing trade war between China and the United States could result in more sanctions. 

© 2019 Business Times All rights reserved. Do not reproduce without permission.
Loading...
Sign Up for Newsletters and Alerts