Skip to content

A manufacturing exodus due to tariffs puts companies that rely on US sales at a disadvantage

A manufacturing exodus due to tariffs puts companies that rely on US sales at a disadvantage

Robots work on the welding line at a Beijing Hyundai Motor Co. plant in Beijing, China, on Friday, March 15, 2013. The joint venture between Beijing Automotive Industry Holding Co. and Hyundai Motor Co., has three plants in the city, manufacturing 11 kind of models. Photographer: Tomohiro Ohsumi/Bloomberg via Getty Images

When tariff hikes began in the spring of 2018, companies associated with manufacturing immediately went on alert. Over the last year and a half, continued escalations have increased pressure on US and China relations, leaving international companies who rely on Chinese manufacturing looking to reduce uncertainty with short and long term solutions.

One of the hardest hit is the electronics industry. While there remain many open questions that companies must answer as they prepare to move their supply chains out of China, the impact on innovation is already visible for companies that took early action – and it is unlikely to get better.

For those companies that took action early, investing in plans, creating new relationships, and moving resources became the foremost priority. While companies have long had production lines outside of China to contend with other local tariffs (such as in India or Brazil), southeast Asia has opened its doors to companies looking to relocate not only production lines, but also their new product development activities. Companies that have decided to move portions of their supply chains have had to focus on rebuilding in other locales, eschewing all other improvement or innovation activities in the meantime.

That means less investment in quality improvement, robotics, digitalisation, and connectivity in their factories. Mark Jagiela, CEO of Teradyne, a leader in automation for the semiconductor and electronics manufacturing verticals, shared “Some clients began moving quickly when tariffs first came up and that meant some sales lost momentum. Because of the move and upheaval, they didn’t want to implement quickly [in the new location] so that slowed things down.”