As we have offices in both China and Vietnam, and like many other manufacturers, we have increasingly found it harder to get new United States-based customers interested in purchasing products made in China. But at the same time, we have also discovered that the US tariffs have not stopped all the purchasing of made-in-China products.
The placing of US tariffs on made-in-China products has not stopped the import of Chinese-made goods into the United States. Some of the reasons for this include 1) China’s highly developed supply chain, 2) the streamlining of Chinese manufacturing, 3) China’s manufacturing cost advantage, 4) the Chinese currency, and 5) the reality of how difficult it is to move an established manufacturing supply chain. These factors help ensure that US companies will continue to purchase products made in China.
Here is a look into why all these factors are important in understanding why Chinese-made products are still viable or, in some cases, the only option for many US importers.
China’s Highly Developed Supply Chain Advantage
Within China itself, the supply chain is very highly developed, and almost everything you need to purchase to manufacture a product can be purchased within China. In many cases, you can find it down the street or around the corner from the manufacturer. From a production standpoint, this is a huge advantage in that changing parts or pieces or other things can be very fast and cost-competitive.
For example, we produce UL-certified lamps in China and Vietnam. But our cost per lamp is always cheaper in China mainly because the UL sockets, cords, and other parts and pieces can be readily found in China. For any lamps we manufacture in Vietnam, we need to buy a huge proportion of the parts from China and have them shipped to Vietnam. The result is that even before a lamp is produced in Vietnam, it already costs more due to the importation of many lamp parts.
This is because the Chinese tend to build their supply chain very close to the major manufacturing bases of a certain kind of product. For example, Zhongshan, China, has always produced a lot of lighting. They call it the lighting capital of China. So, within the city itself, you can find many suppliers of various lamp and lighting parts. A manufacturer must walk down the street to get a part they may need.
This highly developed supply chain is complicated to replicate, if not almost impossible. It is a supply chain built up since China opened its doors for manufacturing in the Mid 1980s, so it may be a supply chain that will never be able to be fully replicated in another country or place.
China’s Manufacturing Processes Are Streamlined.
Many Chinese factories started to streamline their manufacturing processes a long time ago. One of the major reasons is over the last 10 years finding labor in many of the vital manufacturing areas has been very difficult. The Chinese government has also cracked down on many things, such as air pollution or air quality standards. This, coupled with the rising Chinese labor costs, has forced many factories to streamline their manufacturing processes to survive. According to the BBC, in 2016, Foxconn, the primary supplier of Apple products, replaced 60% of its workforce with robots. I assume this is partly due to how difficult it has been the last few years in many parts of China to find labor.
I have seen a shift in China over the last few years where fewer migrant workers are coming from the countryside to work in manufacturing in the industrial beltway of Southern China. When you go into a factory, many workers are not from another part of China or migrant workers who have put down their roots in southern China.
As China has gotten wealthier, these migrant workers have gone back home to their hometowns to be near their families. Many left their children at home with their parents. In the past, they would only see their children once a year during the Chinese Lunar New Year festival. This is also one reason many of them were so willing to work long hours each day with few days off during the week. They wanted to have extra time off during the Chinese Lunar New Year festival to spend more time in their hometown with their family. I can fully understand why these migrant workers would not want to be away from their families and look for alternative work closer to home.
China’s Cost Advantage.
There are just some things that are much cheaper to produce in China. We have priced many products head-to-head between Vietnam and China. Many times, we can find it cheaper in China than in Vietnam. This, of course, is not true of all products and all kinds of manufacturing.
As China continues to develop economically, this manufacturing cost advantage could also change, and they will no longer have this added cost advantage. That is also why I see many Chinese factories trying to improve their quality and give exceptional customer service.
Since this trade war, China’s currency has favored Chinese manufacturers or exporters. They can gain more money on the United States dollar than they have in the past. It has allowed some of them to give some discounts to try to keep their US clients and US-based orders. For others, it has meant they can use some of the extra cash to streamline their production process to try to remain competitive.
Difficult To Move An Entire Supply Chain
As many companies have pointed out throughout this US tariff crisis, it is very difficult, if not almost impossible, to move an entire supply chain to another location. For a Chinese manufacture to move their factory to another country is costly and there are risks associated with this move. For example, there has been an anti-Chinese sentiment in Vietnam.
Many Chinese factories found protesters outside their gates because their factories were Chinese-owned and operated. Vietnam is also a different culture than China and a different country. Though they are neighbors their legal system, their culture and language are very different. Also, many Chinese factories have found it very difficult to survive in Vietnam as their supply chain is very different than what they are used to in China.
The same problems these factories have to move their manufacturing base, it is also difficult to move products and production from one supplier to another or even one country to another. We have found that it is always much easier for us to create new products with a factory than to try to copy a product exactly the same from another country or factory. To copy a product is usually much harder.
Looking at all of these factors shows that moving production, products, and even a manufacturing base out of China to another location is not as easy as everyone has made it sound. The US President has been telling US companies to not worry about China but to buy their products in another country or bring manufacturing back to America.
And though that may sound like a very good sound bite and it may even sound very reasonable to many people, the truth of the matter is that this is easier said than actually done.
If you are interested in finding out more about how we can help you create, develop, and manufacture home decor and home furniture products in Asia, we would love to hear from you. Feel free to contact Mondoro and Anita by clicking here.
Does the Chinese exporter pay all the tariffs?
It is the US Importer that ultimately is responsible and needs to pay for the tariffs. Once the goods arrive in the United States to clear the US Customs the tariff must be paid. But many Chinese factories have been looking at ways to help their customers, either through discounts or other means, so they can keep the business intact in hopes that the trade war will eventually come to a close.
Where can I find an up-to-date list of what is presently under tariff?
The best sources to find the most up-to-date list of what is presently under tariff is to check the website of the United States Trade Representative Office, which is part of the executive office of the United States President. You can find the link to their website here