Google, which already has a significant presence in Taiwan, is now considering entrusting the manufacture of its Nest Thermostats and server hardware in China to avoid costs, according to a Bloomberg report, citing people close to the record . And the Wall Street Journal announced that Nintendo is transferring part of the production of its video game consoles from China to Southeast Asia, citing people working in the company's supply chain.
Video game consoles are generally a low-margin activity, which means that console rates could be a real problem for Nintendo's ability to generate profits. And Nintendo relies on the Switch console to generate big sales.
A spokesman for Nintendo has neither confirmed nor denied that it would dislodge China's manufacturing sector.
"Most of the Nintendo Switch console components are made in China," said the spokesperson. "To help reduce costs for consumers, it is logistically useful to assemble products in close proximity to where these parts are made."
However, the Japanese company indicated that it was closely following the evolution of the tariff situation and that it was still "exploring options" to determine the place of manufacture of its products.
Google (GOOGL) did not respond to a request for comment.
The commercial war drives manufacturing
Beyond Nintendo and Google, companies have reconsidered their supply chains since the White House launched a trade war with China last year. Last month, the US raised import duties to 25%, from 10% to $ 200 billion to Chinese products, including electronic equipment and computer products such as commodities and textiles.
Companies that rely on China for the production of goods to ship to the United States also worry about other potential retaliation measures imposed by China, such as increased regulation or delays in customs. China has increased pressure on US companies as trade tensions intensify.
After the United States hit Huawei with an export ban on May 15, banning US companies from doing business with the Chinese smartphone maker, China reacted by creating a blacklist of foreign companies. Earlier this month, China fined Ford's main company in the country for violating antitrust laws, fueling fears of continued punitive actions by both countries.
This uncertainty could be an even more compelling reason to change manufacturing than to lower prices, said Joseph Foudy, a professor at New York University's Stern Business School.
"If we knew that China was facing a tariff of 15% to 20%, some companies might well take this into account and stay in their trade," Foudy said. "It's the uncertainty that drives you to look abroad because you can not put a price on that."
For technology companies in particular, concerns about intellectual property and security have also been a bone of contention for US-China relations and could prompt them to diversify their supply and manufacturing networks.
Diversify production
Much of the production work from China has been entrusted to countries in Southeast Asia and not to the United States. The region's manufacturing sector posted its fastest growth rate in nine months, according to the latest Nikkei-Markit manufacturers' purchase index, largely due to new orders.
Rising wages in China have given companies another reason to consider relocating their production to countries in Southeast Asia, such as Vietnam and Thailand, where labor is cheaper . The increasing automation of technological manufacturing makes things easier, as companies no longer have to rely on highly skilled workers to produce their products.
According to the Bloomberg report, much of the production of Google motherboards destined for the United States has already been transferred to Taiwan. Over the past year, Google has also invested in its Taiwanese engineering and innovation cluster, which plans to expand its campus and double the size of its team in New Taipei City, as well as provide training. in artificial intelligence and digital marketing to local students.
Despite these changes, China, the largest manufacturer in the world, remains a production center of paramount importance. Factories and suppliers are not only concentrated, but infrastructure (roads, ports, airports and power grids) remains better than in many countries where production has begun to move.
Although companies can gradually move some manufacturing industries or expand their production networks out of China, Mr. Foudy said that he did not expect the country's dominance as a manufacturing center. knows major changes.
"China remains the" total package "of manufacturing," said Foudy. "The efficiency of manufacturing depends on the number of suppliers located nearby, the quality of roads, ports and infrastructure, the quality and consistency of electricity and the talent pool on which support number one. "
US President Donald Trump and Chinese President Xi Jinping are scheduled to meet at the top of the Group of 20 at the end of the month. Trump threatened to put $ 300 billion worth of Chinese exports on the Chinese side if the Chinese leader did not attend the meeting. If negotiations do not end well, companies could consider more seriously relocating their production to China.
