By Tim Culpan / BLOOMBERG
Nobody likes tariffs. Unless perhaps, you’re an executive looking for an excuse to do exactly what you’ve been wanting to do for years.
US President Donald Trump’s escalation of tensions with Beijing has made the manufacture of goods in China just that little bit more expensive.
Yet, even before Trump took office in January 2017, many foreign companies had been wanting to reduce their China footprint. For most, there’s been no single reason that’s been enough.
The list includes an increasingly hostile attitude toward foreign businesses (and executives), more assertive China- first policies from President Xi Jinping, rising costs and escalating concerns surrounding supply-chain security — intellectual property theft, concentration risk and quality control.
A few tweets from Trump about higher tariffs, though, have become the perfect cover for companies to accelerate the moves many had already been making.
Foxconn Technology Group is among them. After a visit to the White House last week, chairman Terry Gou (picture) returned to Taipei to talk about the trip. He also has designs on Taiwan’s presidency, so it was as much a campaign speech as a business update.
Foxconn could move to more competitive locations within a few months to diversify production and minimise the China threat, he said on Monday.
The company already has facilities in the US and Mexico, which can be ramped up as needed.
His US plans actually predate those tariffs. A series of sweeteners from the local government, big talk from Trump, and bravado on behalf of Gou himself, has seen the maker of iPhones pledge to build a multibillion-dollar factory in Wisconsin. Yet, Foxconn had already started boosting its presence in the US before Trump was elected, with its non-current assets (non-current assets include plants, property and equipment, and may include shares and other investments) in the country rising 26% in 2016 and almost doubling again in 2017. Foxconn’s Wisconsin deal wasn’t signed until November of that year.
In the five years to the end of 2017, Foxconn’s non-current assets in China fell 23%. Over the same period, they rose 61% in the US and 74% in Foxconn’s home base of Taiwan.
Most business leaders don’t want to talk publicly about their China exit strategies for fear of inflaming Chinese leaders or its citizens. They still want to manufacture in, and sell to, China and continue to have a presence there. But privately, some have told me that a reduction in China exposure is long overdue. None whom I have spoken with envision exiting entirely, but many said they would prefer to invest elsewhere.
Taiwan’s Delta Electronics Inc, one of the world’s biggest suppliers of power packs and electronics components, is among those opting for the stealth route. This year it applied to pour US$1.8 billion (RM7.47 billion) into Taiwan for production and research and development, but its identity was unknown until media dug it up.
Western companies are among those making the move. Either by shifting their own facilities, or asking suppliers to transfer capacity. Beneficiaries include Mexico, Vietnam, the Czech Republic and even Malaysia.
Executives won’t admit that these changes are because China has lost its lustre. But now if you corner them in an elevator, they have the perfect excuse for making the move: Tariffs. — Bloomberg
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.