Continued Chinese Manufacturing Shifts

Written by Seth Barnett
While Chinese tariffs decrease, the cost of doing business in China continues to rise leading to increased manufacturing demands in other areas of the world.

A massive consumer good import shift has been underway since new Chinese tariffs were first imposed in 2018. Since that time, retail products, technology equipment, and even promotional goods have begun to emerge from other countries throughout Asia and Europe as a way of minimizing the impact of these tariffs. Tariffs on Chinese goods have been decreased in recent months, but still, make up about half of all goods coming from China, some $250 Billion worth annually (https://www.wsj.com/articles/u-s-tariffs-drive-drop-in-chinese-imports-11620811802?mod=hp_lead_pos10).

The original goal was to help increase U.S. domestic manufacturing on more commonly consumed products. While some manufacturing has been moved to the U.S. from China, it remains very limited. Most lost Chinese goods are now coming to the U.S. from Vietnam, South Korea, and even Ireland.

Many assumed with lessened restrictions on Chinese imports, a return to the demand of Chinese factories would resume and even grow as demand expands. But in April, the factory-gate prices of China increased the most in 3.5 years. The means that even as tariffs decrease, the cost of doing business in China continues to rise. These price increases indicate a necessity for a long-term if not a permanent shift away from major manufacturers in China.

What are Factory-Gate Prices?

These prices are a conglomerate of the cost of a good from a factory or the cost of doing business with that factory minus the exporting, shipping, or tariff costs. These costs are mostly adjusted based on the market shifts of the commodities used to manufacture the products. So, some industries, such as technology, see a greater shift in these costs.

As the demand for consumer goods continues to expand and as the western world returns to nearly pre-pandemic norms, the shift away from China will continue to expand. This creates a new level of opportunity for additional areas of the developing world. While the most obvious option as an alternative for manufacturing is to incorporate operations into the U.S., the task is much more difficult and costly. This opens possibilities for manufacturing to move into areas of Europe, Southeast Asia, and Africa.  

by Seth Barnett, VP Content Development