As with any war, there are winners and losers. That is also the case with the U.S.-China trade war.
As the two countries battle, companies affected by high tariffs are looking to manufacture their products elsewhere, and businesses outside of the U.S. and China are seeing economic booms.
Two factories in Vietnam currently make electric bicycles for Pedego, an American company based in Fountain Valley, California. Eighty percent of Pedego’s bike parts used to be from China, but not anymore.
“Now, we’re probably 70% in Vietnam, and 30% in Taiwan,” said Don DiCostanzo, Pedego’s co-founder and CEO.
Shift to Vietnam
In February 2018, DiCostanzo said he made the decision to shift production to Vietnam because of the threat of high European Union tariffs on Chinese-made electric bikes. Production in Vietnam started seven months later in September, the same month the U.S imposed a round of tariffs on Chinese made goods that included electric bikes.
“We then were immediately able to accelerate that production. And we began producing bikes in Vietnam for this country (the U.S.) in September right after the tariffs went in place, and by Jan. 1, (2019), we eliminated all production in China and managed to move all of our production and supply chain to Vietnam,” DiCostanzo said.
By the beginning of this year, the factories in Vietnam were producing bikes for Pedego. While some bike components were still coming from China, DiCostanzo kept looking to source components from other countries, and Pedego’s dependence on Chinese components decreased over time.
Trade war helps Vietnam and Mexico
Pedego is not the only company moving manufacturing away from China because of the trade war. The U.S.-based company GoPro moved production of its U.S.-bound cameras out of China and into Mexico in June. GoPro said it wanted to insulate the company “against possible tariffs as well as recognize some cost savings and efficiencies.”
GoPro cameras for markets outside the U.S. continue to be produced in China.
“The two countries that are benefiting the most are Vietnam and Mexico. They are benefiting because of the ability to take advantage in terms of capacity and because of their geography. And everybody else is looking at them with envy,” said Kevin Klowden, executive director of the Center for Regional Economics at the Milken Institute, a think tank based in Santa Monica, California.
According to the U.S. Census Bureau, goods imported from Mexico increased by more than 6% for the first six months of 2019, compared to the same period in 2018. Imports from Vietnam during those same periods rose by more than 33%. Chinese imports for the same periods decreased by more than 12%.
“The Vietnamese government has done an incredible job of making themselves ready and available to facilitate moving manufacturing. They’ve been positioning themselves as a direct competitor to China for a while, particularly on cost,” Klowden said.
DiCostanzo said he found the quality of products from Vietnam has also been better than from China.
Return manufacturing to US
Manufacturing and outsourcing in a global economy is a fickle business, however. Any weather disruptions, political instability or the emergence of a cheaper competitor can cause businesses to shift to a different manufacturing hub.
“Manufacturing has shown itself to be mobile in a way that we never could have imagined years ago,” Klowden said.
Some companies in the U.S., such as Pedego, eventually would like to manufacture their products in America.
“A number of companies would like to move manufacturing back to the U.S. just because of proximity to market because of stability. The catch is that manufacturing that moves back to the U.S. employs dramatically fewer people than it would have 20, 30 years ago,” Klowden explained.
Any business that manufactures in the U.S. and can successfully compete in the global economic would use automation and robotics.
“These robots, you don’t have to pay them overtime, and they don’t have to take time off, and they work 24/7,” Pedego’s DiCostanzo said. “So, the idea of robotics and the efficiency of a robot could actually drive the prices down.”
DiCostanzo is part of a coalition of American bike manufacturers that is pushing for legislation to exempt bicycle assembly-related components from tariffs for 10 years, action that could spur the opening of automated bike factories in the U.S.