The U.S. presidential election has entered its final sprint phase, and many Chinese exporters have stated that if Trump wins the election, they will accelerate the relocation of production capacity out of China.
Mike Sagan, Vice President of Supply Chain and Operations at the U.S. toy manufacturing company KidKraft, said that if Trump wins the election, they expect to reduce their supply chain in China by half within a year.
KidKraft, headquartered in Texas, was founded in 1968 and its products are sold in over ninety countries. In addition to toys, the company also produces outdoor play equipment. Following Trump’s imposition of tariffs ranging from 7.5% to 25% on Chinese imports in 2018, KidKraft has already relocated 20% of its production capacity from China to Vietnam, India, and other locations.
This year, KidKraft has reduced its number of Chinese suppliers from 53 to 41.
Sagan said that Trump’s proposal to impose a 60% tariff on Chinese goods would undoubtedly be an unprecedented blow. He anticipates that if Biden is elected, he may not take such drastic measures (imposing high tariffs), but it is still possible to continue to confront Beijing on trade issues.
“Now is the calm before the storm, the situation will definitely become more challenging in the future,” Sagan said. “The question is whether it will be difficult or very, very difficult.”
Trump’s proposed comprehensive tariffs have caused fear and unease among Chinese companies and factories. China sells goods worth over $400 billion to the United States annually, and Chinese factories also provide components worth billions of dollars for products purchased by Americans from elsewhere.
Reuters interviewed 27 Chinese exporters, of which at least 15% of their products are sold to the United States. Among these companies, 12 plan to accelerate the relocation out of China after Trump returns to the White House. Four companies that still have their production entirely in China stated that if Trump raises tariffs, they will open factories overseas.
The other 11 companies have not yet made specific plans, but most are concerned about the possibility of losing market share in the United States.
Matt Cole co-founded m.a.d furniture design company with others in 2010, one of the companies that has not yet transferred its production line.
In 2018, when the first round of the U.S.-China trade war began, Cole conducted a survey in Southeast Asia. The results showed that he still needs to import 60% of furniture components from China. The logistics and other costs are roughly equivalent to a 25% tariff.
Therefore, six years ago he decided against relocation, but now he feels he is facing risks.
If Trump wins, Cole will try to ship to the U.S. as much as possible before the tariffs are implemented, buying time for the company to develop other production bases.
“Some people made the right decision and have moved their production capacity to a third country. I’m sure they’re not as worried about the U.S. election as I am,” Cole told Reuters. “I might soon be boarding a flight to Malaysia or Vietnam.”
Sagan said that relocating production outside of China costs about 10% more. If Biden wins, they will still relocate, but at a more cautious pace.
Trump’s trade war 2.0 could be a significant blow to many Chinese exporters. In the Chinese market, their profits are constantly decreasing due to heavy inflation pressures.
Chinese advantage exports, such as electric cars, are facing high tariffs in the United States, Europe, and other regions. Trump further stated that if Chinese electric car manufacturers try to sell American-made cars from Mexican factories to the United States, they will face a 200% tariff.
Economists suggest that a 60% comprehensive tariff on China may be implemented as early as mid-2025, leading to a 0.4 to 0.7 percentage point reduction in China’s economic growth next year due to investment, employment transfer, reduced production, and associated factors.