(Bloomberg Opinion)—Nobody likes tariffs.
Unless perhaps you’re an executive looking for an excuse to do exactly what you’ve been wanting to do for years.
President Donald Trump’s escalation of tensions with Beijing has made the manufacture of goods in China just that little bit more expensive.
Yet even before Trump took office in January 2017, many foreign companies had been wanting to reduce their China footprint. For most, there’s been no single reason that’s been enough. The list includes: an increasingly hostile attitude toward foreign businesses (and executives), more assertive China-first policies from President Xi Jinping, rising costs and escalating concerns surrounding supply-chain security – IP theft, concentration risk and quality control.
A few tweets from Trump about higher tariffs, though, have become the perfect cover for companies to accelerate the moves many had already been making.
Foxconn Technology Group is among them. After a visit to the White House last week, chairman Terry Gou returned to Taipei to talk about the trip. He also has designs on Taiwan’s presidency, so it was as much a campaign speech as a business update. Foxconn could move to more competitive locations within a few months to diversify production and minimize the China threat, he said Monday. The company already has facilities in the U.S. and Mexico, which can be ramped up as needed.
His U.S. plans actually predate those tariffs. A series of sweeteners from the local government, big talk from Trump, and bravado on behalf of Gou himself has seen the maker of iPhones pledge to build a multi-billion dollar factory in Wisconsin. Yet Foxconn had already started boosting its presence in the U.S. before Trump was elected, with its non-current assets(2) in the country rising 26 percent in 2016 and almost doubling again in 2017. Foxconn’s Wisconsin deal wasn’t signed until November of that year.
In the five years to the end of 2017, Foxconn’s non-current assets in China fell 23 percent. Over the same period, they rose 61 percent in the U.S. and 74 percent in Foxconn’s home base of Taiwan.
Most business leaders don’t want to talk publicly about their China exit strategies for fear of inflaming Chinese leaders or its citizens. They still want to manufacture in, and sell to, China and continue to have a presence there. But privately, some have told me that a reduction in China exposure is long overdue. None whom I have spoken with envision exiting entirely, but many say they would prefer to invest elsewhere.
Taiwan’s Delta Electronics Inc., one of the world’s biggest suppliers of power packs and electronics components, is among those opting for the stealth route. This year it applied to pour $1.8 billion into Taiwan for production and R&D, but its identity was unknown until media dug it up.
Western companies are among those making the move. Either by shifting their own facilities, or asking suppliers to transfer capacity. Beneficiaries include Mexico, Vietnam, the Czech Republic and even Malaysia.
Executives won’t admit that these changes are because China has lost is luster. But now if you corner them in an elevator, they have the perfect excuse for making the move: tariffs.
(1) Non-current assets include plants, property andequipment,and may include shares and other investments.
To contact the author of this story: Tim Culpan at [email protected]
To contact the editor responsible for this story: Rachel Rosenthal at [email protected]
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.