[By Guancha Observer Network, Ruan Jiaqi]

"Under the tariff storm, contrary to Trump's expectations, companies are increasingly viewing China as the safest haven."

According to a report by US media The New York Times on September 9, despite the continuous escalation of tariffs imposed by this American president on China, his "bombardment" of trade taxes on many Asian countries and the unpredictability of his subsequent actions have instead prompted those enterprises that dare not make rash decisions in the midst of global trade turmoil to increasingly believe that China is an attractive choice, deciding to continue their commitment to stay in China. This is completely contrary to Trump's original intention of exerting maximum pressure on China and urging other countries to invest in the US.

In the first Sino-US trade dispute in 2018, some Asian countries became popular choices for relocating production lines from China due to their advantages in avoiding high US tariffs on China and reducing supply chain disruptions. However, during Trump's second term as president, last week he launched a comprehensive trade war against the world, and none of these former "ideal alternatives" escaped being caught up in the vortex of trade disputes.

The so-called "reciprocal tariffs" promoted by Trump have produced effects he did not anticipate. The New York Times found that many enterprises increasingly believe that China is a more attractive production base and procurement source, abandoning the idea of transferring capacity and supply chains to Vietnam, India, or other Asian countries.

Moreover, the chaos caused by the announcement of US tariff policies has made enterprises worry that making significant adjustments to the supply chain would cause more turbulence. Facing ongoing changes and uncertainties, enterprises tend to maintain the status quo and continue long-term cooperative relationships with Chinese suppliers or manufacturing partners.

Trump defended his tariff policy at a press conference at the White House on the 7th. Video screenshot.

This week, Luther attended an American entrepreneur conference. He revealed that like other participants, he did not spend time seeking new partners or considering ways to transfer business out of China. Instead, he is continuing to work with Chinese partners to find ways to save costs or develop new products.

Luther further pointed out that these American enterprises still choose to stay in China because they all benefit from China's mature and advanced manufacturing and engineering processes. Cost advantage is no longer the only reason why China is the preferred location for commodity manufacturing. He emphasized, "Nowadays, cost advantage is not even the main reason for most enterprises to stay in China."

At the same time, Luther denied Trump's insistence that "tariffs help bring manufacturing back to the US." For most enterprises, the US is not an ideal investment choice. Even if tariffs weaken China's cost advantage, most US factories still struggle to match China in terms of manufacturing capability, capacity, and speed.

Luther gave an example: an advisor told him that building a factory for growing and processing bamboo fiber in the US would require at least $6 million. Moreover, during the years it takes for the bamboo to grow, he would still need to import bamboo fiber from China and pay tariff fees.

Furthermore, replacing suppliers or moving the entire supply chain is an extremely difficult, expensive, and time-consuming process. Therefore, unless government policies become sufficiently clear, enterprises will not be willing to take risks lightly.

A senior executive of an international contract manufacturer frankly stated that given the frequent changes in US policies, enterprises simply cannot make long-term decisions to relocate their businesses out of China based on this.

"The rules of the game in the US seem to change every day. It feels like we have no choice but to stay put," he complained helplessly.

"This is like a fog of war, except it’s a fog of a trade war." Kit Conklin, global risk and compliance director at supply chain monitoring company Exiger, described it this way: "Policies must be certain for industries to respond."

US media cited a research report by Japanese Nomura Securities which pointed out that after the US threw tariff punches at 180 countries and regions worldwide, the motivation for enterprises to move factories out of China has been greatly weakened. The report stated that although China still faces huge challenges brought by increased US tariffs, "spreading wider tariff nets on competitors may unintentionally maintain China's position in the global supply chain."

Sarah Massie runs a company providing foreign trade consulting services for American enterprises. Her observation is that when tariffs everywhere remain high, people tend to maintain the status quo. "In the manufacturing sector, China represents the status quo."

"If everyone is affected, it will inevitably lead some enterprises to abandon looking for new solutions." Sarah explained the general mindset of enterprises to US media: "People will think, at least we know what this (Chinese) supplier can provide us, and before the tariffs were implemented, our cooperation was pleasant and satisfactory. Why not continue this good relationship?"

This article is an exclusive article by the Guancha Observer Network and cannot be reprinted without permission.

Original source: https://www.toutiao.com/article/7491490610931646986/

Disclaimer: The views expressed in this article are solely those of the author and welcome your opinions to be expressed in the [like/dislike] buttons below.