The ongoing trade war between the United States and China has come with some major effects on businesses from both nations and this has resulted in some American companies opting to move their production in order to cut costs and risk.
The majority of US companies that take the production of their goods to China do so as a way to cut their production costs. Labor and technologies are more readily available and cheaper in places such as China and this enables these companies to maximize their profits. Tech companies especially find producing their goods in China highly beneficial but this position has shifted due to the ongoing trade war between the United States and China.
Companies such as Microsoft and Apple find themselves in a position where they are looking at moving their production to other regions outside of China due to the effects of the trade war. China has increased production costs and tariffs on goods such as consoles, data center components and smart speakers which has also prompted companies like Dell and HP to look outside of China in a bid to cut costs.
According to an executive who is well versed with the plans, the companies are looking to move at least 30% of their production to other places. Apple is the slowest in terms of trying to move their production but the other companies are showing aggression in their efforts. Microsoft is the latest addition to the list of companies that are planning to love out of China. The companies are looking at countries such as Indonesia and Thailand as options which can offer them viable production setups.
The Possible Effects Of These Companies Moving Their Production Out Of China
If Microsoft and the other American companies do move a portion of their production to other regions, there could be some serious effects on China’s export business. China earns more than $1.35 trillion from the export of electronics. These earnings would dwindle significantly if the trade war is not resolved to the satisfaction of the tech companies such as HP and Dell.
A number of Chinese companies that rely on technology from the United States have already moved their business to other regions in a bid to save their profits. Foxconn Technology is one such company whose production has been moved to Mexico and the Czech Republic. The effects of such moves are already being felt and adding tech giants to that list will be devastating for China.
Is There A Possible Near End To The Trade War?
At the recent G20 summit, there was an unclear agreement reached by President Xi Jinping and his counterpart President Donald Trump regarding the trade war. Due to the lack of clarity around the truce, there is no certainty as to whether the trade war will end anytime soon. Prior to the G20 summit, a deadline for the negotiations has been set for August and it is yet to be seen what course of action the two governments will take. Tech companies have already started slowing down production in anticipation of a meltdown come August and this has already started affecting China. The United States companies would prefer to remain in China for their production but it all comes down to the results of the negotiations between China and the United States.