Relocating to Vietnam to Mitigate the Effect of the US – China Trade War – Minimizing Risks

Minimizing risks

Manufacturers based in China can minimize risk by moving to other cost-effective locations in Southeast Asia, including Vietnam. This would require finding new suppliers, renegotiating contracts, and moving assets which will be time-consuming and costly. In the short term, companies can add new suppliers and apply tariff engineering strategies if possible to mitigate trade risks.

Review tariffs

Before considering moving out of China, firms need to closely review the tariffs and ensure correct HS code classification for their products. In addition, they also need to focus on customs valuation to determine the value of imported goods.

This will not only help in correctly determining the increased cost but also provides an opportunity to employ tariff engineering strategies.

Supply chain optimization

The US importers need to work closely with suppliers to ensure the accuracy of the origin of their products, especially with tier-2 and tier-3 suppliers. This will assist them in not only verifying the country of origin but also in diversifying the supply chain to reduce exposure. A geographically diversified supplier base will also help companies in managing risks such as inflation and currency fluctuations.

They can either diversify a part of their supply chain or completely redesign it based on the availability of similar suppliers in the region and cost.

Moving to a new location

Manufacturers can move their entire manufacturing operations or a part of it to a third country, which is not facing higher tariffs. In the short-term, they can move a part of their manufacturing process to a third country, which will change the HS code classification of the semi-finished goods produced in China and may attract lower tariffs.

Eventually, they need to focus on completely relocating their production lines to a third country, such as Vietnam. Already in the last few years, major electronics firms such as Intel, Foxconn, LG, and Samsung have moved to Vietnam due to higher wages in China. In addition, several retail brands such as Nike, Adidas, and Puma have also shifted to Vietnam and Cambodia to reduce costs. The ongoing trade war will continue to accelerate this trend.

 

This text is part of a more complete analysis available for free.

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