The First Pinholes In The Dike

A short while ago, I wrote about possible benefits from President Trump’s newly signed Tariff/Immigration Enforcement deal with Mexico. I posited that since our trade relationship with Mexico (and Canada) has improved relative to the one with China, U.S. trade companies would look to source their products in countries other than China. I speculated that Mexico, Canada and/or the Pacific Rim would benefit from this. Now comes some confirmation from the street.

One of my commenters wrote this:

China is running out of time. Like thousands of others, my company is going to re-source out of China. I have a meeting Tuesday with our rep company to review a bid from Viet Nam. Cutting a new mold in Viet Nam is a fraction of the cost of the tariff on just one container of product. At this point, I am tired of the Chinese stirring the pot and will probably make the switch anyway.

So I gave him a jingle. In a lengthly interview covering a number of international trade topics, “Jim,” pretty much said, “I’m done with China.” Jim’s company designs and markets home consumer goods. He pointed out the huge risk China is taking by failing to take President Trump seriously in this tariff fight. In market segments like Jim’s, which require molds, jigs and/or specialized tooling, a move away from a current supplier, is only taken in expectation of a huge increase in revenue-profit and/or to obtain relief from restrictive or punitive regulation or costs. 25 percent tariffs put China at far more risk than the United States.

The way Jim, a real, no-kiddin’ CEO explained it, was pretty close to my inexperienced hunch a few days ago. The longer this goes on, the more folks like Jim, are going to take their business elsewhere…elsewhere that that doesn’t have the restrictions and opportunity costs that operating in China does. Here is the bad part for China. These businesses aren’t going to return. Even if tomorrow, China accedes to each and every one of President Trump’s demands, it will be too late for many of these businesses.

These high performance owners/CEOs will have already signed contracts in other, more favorable climes. They will have also built new molds, jigs and specialized tooling. All of this production infrastructure, will of course, incorporate the latest improvements. Thus, going back to China, would also entail going back to an older, less capable version of the required manufacturing assets. Who would want to do that?

My friend Jim, isn’t the only one. He was at a conference with a number of other manufacturers—a good many of them were on the same path as he—the road away from China. It’s too early to state boldly and one data point is not a trend, but China’s inability to read President Trump, just might have gutted its own economic future. The first pinholes are in the dike. If China doesn’t act fast, the dam will surely burst.

Mike Ford is a retired Infantry Officer who writes on Military, Foreign Affairs and occasionally dabbles in Political and Economic matters.

Follow him on Twitter: @MikeFor10394583

You can find his other Red State work here.