Agencies
If Donald Trump wins next month’s U.S. presidential election, Mike Sagan’s toy-making company plans to cut its reliance on its China supply chain by half within a year.
KidKraft, which also makes outdoor play equipment, had already shifted 20% of its production out of China to Vietnam, India and elsewhere after Trump introduced 7.5%-25% tariffs in July 2018, midway through his first term.Now Trump threatens blanket 60% tariffs on China, which Sagan sees as a game-changing “blunt” tool.
He expects Kamala Harris to be less aggressive, but still likely to keep confronting China on trade.
“The writing is on the wall that it’s going to be difficult,” said Sagan, vice president for supply chains and operations at KidKraft. The firm has reduced its Chinese suppliers to 41 from 53 at the start of this year.
“Question is: is it going to be extremely difficult or just difficult?” The tariff threat alone is rattling China’s industrial complex, which sells goods worth more than $400 billion annually to the U.S. and hundreds of billions more in components for products Americans buy from elsewhere.
Of the 27 Chinese exporters with at least 15% of sales to the U.S. Reuters spoke with, 12 were planning to accelerate relocation if Trump returned to the White House. Four others, still fully in China, said they would open factories overseas if Trump raised tariffs. The other 11 had no specific plans around the election result, but most expressed concern they might lose U.S. market access.
The producers expected higher tariffs on the world’s largest exporter to disrupt supply chains and further shrink Chinese profits, hurting jobs, investment and already sagging growth.
A trade war would raise production costs and U.S. consumer prices even if factories relocated, they said.
Matt Cole, who co-founded m.a.d Furniture Design in 2010, is among those who haven’t moved production yet.
His due diligence in Southeast Asia in 2018 showed he would still need to import 60% of furniture components from China. The costs of logistics and other inefficiencies were roughly the same as those added by a 25% tariff.
Though he saw little value in moving six years ago, he now feels exposed.
If Trump wins, he would move as much product to the U.S. as possible ahead of the tariffs, buying himself time to explore other bases.
“Some people made a good decision going into third countries. I’m pretty sure they are not as worried about the U.S. election as I am,” said Cole. “I might be on a flight to Malaysia or Vietnam very, very soon.” KidKraft’s Sagan says his production costs outside China are about 10% higher and likely to rise. But lower standards are the bigger worry.
If Harris wins, the relocation would proceed at a more considerate pace to reduce that risk.
Quality is “one of the biggest trade-offs that you make in the very beginning because it takes time to secure the sub-supply chain” and “find the right people,” he said.
