The Wall Street Journal

Apple, Nintendo and Huawei: The Future of 'Made in China'


Trade tensions are disrupting supply chains in China that have churned out electronics such as Apple's iPhone and Nintendo's Switch. Now companies are considering a move out of the country.

Photo composite: Sharon Shi

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- From Apple phones to Nintendo consoles,
many of the products Americans love, are made in China.
But is that about the change?
The country has long been
the world's manufacturing powerhouse
because it has the raw materials
and cheap workers to power supply chains.
For years companies, especially tech giants,
like Apple and Dell have relied on Chinese factories
to assemble their products.
Because of the ongoing trade dispute between the US
and China and escalating terror threat
from the Trump administration.
Many manufacturers have started to lay up plans
to shift some of that production elsewhere.
In a recent survey of 250 companies operating in China,
40% have said that they are considering
or have relocated manufacturing facilities
outside of the country.
Analysts expect there could be more
if the trade dispute escalates.
Here are three cases that can tell us why companies
are looking to move out of China.
First, tariffs.
This is one of the biggest concerns
for any company that is importing made in China products
into the US.
In May the US increased import tariffs to 25% from 10%
on $200 billion of Chinese goods.
The Trump administration is also planning to place tariffs
on an additional $300 billion of Chinese imports.
If this new round of tariffs kicks in,
it would cover electronics like smartphones, laptops
and video game consoles, which are almost entirely
imported from China.
Companies like Nintendo want to limit the impact
of these US tariffs on Chinese made electronics.
For years, the Japanese company needed low contract
manufacturers in China to assemble its video game hardware.
That's because video game platform owners
tend to sell hardware to thin profit.
So it's not the console that brings in the big bucks.
It's the revenue from games.
If Nintendo had to pay a 25% tariff
to import its Chinese made consoles into the US,
that thin profit would be decimated.
So Nintendo has said it's shifting production to
Southeast Asia to limit that impact.
The company has started producing the Switch
and two new models there.
Companies are also realizing
that they can't put all their eggs in one basket.
With a lingering trade dispute between China and the US,
many companies might also have to think
about diversified production locations.
One example is Apple.
The company relies and hundreds of thousands of workers
and its deep network of suppliers in China
to crank out iPhones.
People familiar with the matter
said Apple is now asking suppliers to consider
shifting the final assembly elsewhere.
The company declined to comment.
Luckily one of Apple's contract manufacturers Foxconn,
says it's ready to move.
The company says it has about 25% of his manufacturing
outside the mainland
and it's factories around the world
can keep churning out sufficient quantities
of Apple products.
Some companies are worried about being swept up
in the political tit for tat between China and the US.
Case in point, Huawei.
U.S hit the Chinese telecom giant with an export ban
shortly after trade talks collapse last month,
which barred many American companies
and beyond from doing business with the company.
China responded by saying it will create its own list
of foreign entities seen as damaging
to Chinese companies national interests.
Manufacturers are also worried about increased roadblocks
that Chinese authorities may put up,
like increased regulation, customs delays
or greater scrutiny.
Before negotiations collapsed,
both countries were discussing ways to make it easier
for foreign companies to invest and operate in China.
But now the talks are at stalemate
Chinese officials have warn there could be consequences
if companies move.
It's been a long year of trade negotiations
between Washington and Beijing
and a deal likely won't come anytime soon.
Companies like Apple and Nintendo
are seeking out alternative locations for production.
While, other companies sit it out,
hoping that a deal will come.
Either way, it's expensive for companies.

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