Asian companies mix production in the region while Chinese tariffs

SEOUL / TOKYO (Reuters) – A growing number of Asian manufacturers of products ranging from memory chips to machine tools are moving from China to other factories in the region following tariffs imposed by US President Donald Trump on Chinese imports.

Companies including SK Hynix (000660.KS) from South Korea and Mitsubishi Electric (6503.T), Toshiba Machine Co. (6104.T) and Komatsu (6301.T) Japan has started planning production movements since July, when the first tariffs were applied, and changes are under way, representatives of companies and other people familiar with the projects told Reuters . Others, such as the Taiwanese computer scientist Compal Electronics (2324.TW) and the South Korean company LG Electronics (066570.KS), establish contingency plans in case of continuation or deepening of the trade war.

Representatives from the company and other sources requested anonymity because of the sensitivity of the problem.

Rapid reactions to US tariffs are possible because many large manufacturers have facilities in several countries and can move at least small amounts of production without building new plants. Some governments, particularly in Taiwan and Thailand, are actively encouraging businesses to relocate from China.

The US has imposed 25 percent tariffs on $ 50 billion worth of Chinese-made products in July, and a 10 percent second round covering an additional $ 200 billion in Chinese exports will come into effect next week. The latter rate will reach 25% by the end of the year and Trump has threatened a third round of tariffs on $ 267 billion (204 billion pounds), which would bring all Chinese exports to the United States into the United States. the tariff regime. .

The tariffs threaten China's status as a low-cost production base that, with the lure of the growing Chinese market, has attracted many companies to build factories and supply chains in the country during of the last decades.

At SK Hynix, which manufactures computer memory chips, work is under way to transfer the production of some chip modules to South Korea from China. Like its American rival Micron Technology, which also moves memory chips from China to other Asian countries, SK Hynix performs some of its packaging and chip testing in China, the chips being for most manufactured elsewhere.

"Some DRAM module products made in China are exported to the United States," said a source with first-hand knowledge of the situation, referring to the widely used random access dynamic memory chips. "SK Hynix plans to bring these DRAM module products to South Korea to prevent tariffs from being impacted."

Most of SK Hynix's production will not be affected, the source added, as China's predominance in computer and smartphone manufacturing makes it by far the most important market for DRAM chips.

Toshiba Machine Co (6104.T) plans to move the production of US-bound plastic molding machines from China to Japan or Thailand in October.

The machines are used to make plastic components such as automobile bumpers. "We have decided to transfer some of our production from China because the impact of tariffs is important," said a spokesman.

Mitsubishi Electric, meanwhile, says it is transferring the production of US metalworking machine tools from its Dalian manufacturing plant in northeastern China to a Japanese plant in Nagoya.

In Taiwan, a leader of the laptop maker Compal, who declined to be named, said the impact of the trade war had been limited so far, but the company was studying its options.

"We can also use facilities in Vietnam, Mexico and Brazil as alternatives," said the person. "It will not be easy because our majority production is in China; no other country can replace it at this time. "

Small businesses are also exploring their options. The South Korean medical device manufacturer, IM Healthcare, which manufactures products including air purifiers, is studying a move to Vietnam or South Korea if trade conflict intensifies.

SK Hynix declined to comment. The spokespersons for Compal and IM Healthcare could not be reached immediately.

Some Asian governments are hoping for an economic and strategic revival of the US-China conflict. In Taiwan, the government is actively encouraging companies to relocate their production to China, pledging last month to accelerate their "Southbound" policy in order to reduce their economic dependence by encouraging companies to move their chains to China. supply to Southeast Asia.

Taiwan's economy minister William Liu told Reuters the trade war was "a challenge and an opportunity" for the autonomous island. Taiwan is counting on China as an export market, he noted, but at the same time, companies could revive their business in their country.

Thailand also hopes to benefit from the flow of technology and investment that left China during the trade war, said Kanit Sangsubhan, secretary-general of Thailand's Eastern Economic Corridor Office, which is coordinating a $ 45 billion project. to attract investment. in the country. Last month, ECE brought about 800 Chinese business representatives to the East Industrial Center, and the country's Investment Council made seven tours to China this year to attract investors.