US companies are increasingly shifting their manufacturing operations out of China, coming to terms with a new reality that US tariffs imposed by the administration of President Donald Trump will not go away any time soon.
As it becomes clear that the risk of tariffs will remain in the foreseeable future, more American companies are taking steps to mitigate them and accepting trade conflict with China as a new reality, according to businesses and trade groups interviewed by Reuters.
US Trade Representative Robert Lighthizer, who is also Trump’s lead trade negotiator with China, warned lawmakers on Wednesday that Washington would need to keep the threat of stiff tariffs on Beijing in place for years, even if a trade deal is signed.
Lighthizer, testifying to the US House of Representatives Ways and Means Committee, said the threat of tariffs against China is part of an enforcement mechanism that would include frequent reviews of whether Beijing was abiding by any trade agreement.
Lighthizer, one of the administration’s most ardent hard-liners on China, said a great deal of work remains to hammer out a trade deal, including agreeing on how it would be enforced.
That confirms what many US companies have already concluded; tensions will linger and continue to reshape the economic relationship between the world’s two largest economies even if the hot phase of this trade war passes.
“As you look at the way these negotiations are shaping up, you must certainly think: not only will it take a while for the talks to reach their full conclusion, but there’s going to be enforcement mechanisms,” Steve Lamar, executive vice president of the American Apparel and Footwear Association, told Reuters.
“I would imagine punitive tariffs are going to be with us for a while,” he added.
Apparel and footwear manufacturers have been shifting their production to factories in other countries like Vietnam, Indonesia and Egypt for much of the past decade, but the push has intensified due to the trade war, Lamar said.
“Even if the threat (of more tariffs) never materializes and it’s always out there, who wants to live with that threat?” he said.
It will take years, however, for large manufacturers and retailers to build new manufacturing supply chains.
One company already moving some production out of China is Bissell, the vacuum maker. CEO Mark Bissell said long before tariffs, he was looking for alternatives due to rising costs in China.
“The geopolitical issues between the two countries will continue to be large and with so much at stake, the relationship will be touchy going forward,” Bissell said in an email. “Diversifying the supply chain makes continued sense and I don’t see a reversal of course.”