The trade war is speeding up tech manufacturers' plans to move out of China, a longtime industry analyst says

GBA managing partner Gregor Berkowitz, as seen in San Francisco on Thursday, May 23, 2019

The trade war is prompting tech manufacturers to speed up plans to shift production out of China, said Gregor Berkowitz, a longtime tech industry consultant.
Wages have been rising rapidly in the country, taking away one of the key reasons many companies set up shop there, he said.
The latest threatened tariffs could make Chinese-goods significantly more expensive than those made elsewhere, he said.
The big Taiwanese manufacturers are already shifting production from China back to Taiwan and are making plans to set up shop in Southeast Asia, according to Berkowitz.
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The trade war may be hastening the day when China is no longer the world's factory.

The country established itself as ground zero for global manufacturing largely due to its cheap workforce. But wages in the country for manufacturing workers have been rising rapidly in recent years and are now at about the same level as those in nearby Taiwan, said Gregor Berkowitz, a longtime tech industry consultant who travels frequently to Asia.

With the Trump administration threatening to impose new tariffs on Chinese-made goods that could hit tech products hard, manufacturers — particularly the big Taiwanese companies that make many of the tech products on US shelves — are already starting to move production out of the country, Berkowitz said.

"They are already assertively moving out of China," he said.

The Taiwanese manufacturing companies are initially looking at moving production back to Taiwan, Berkowitz said. Because they already have their engineers and teams in the country, they can get factories up and running there in about six months, he said.

Read this: A longtime industry expert explains why Trump's attack on Huawei could end up hurting Google and other US tech giants

Manufacturers plan to eventually set up shop in Southeast Asia

Some of the companies have already shifted the production of server computers to Taiwan, Berkowitz said. But in recent months, they spoke of shifting their laptop production to the country, too, if US tariffs on such goods rose to 25%. After already announcing two sets of tariffs on Chinese goods, the Trump administration threatened early this month to impose a 25% tariff on some $300 billion worth of additional products from the country. That latest set of duties would likely cover laptops and other computer-related products.

Moving "laptop manufacturing is quite a significant deal," Berkowitz said.

Both manufacturers and the Chinese government have expected the country to transition from an export economy focused on making products for other countries to a domestic consumer-based one. But the trade war is prodding manufacturers to speed up their timetable for shifting production elsewhere, he said.

The Taiwanese manufactures plan to eventually move their plants to Thailand, Vietnam, and Indonesia, Berkowitz said. But that move will likely take them two to three years, he added.

"They're building facilities in Taiwan to meet short-term needs and making plans to make major transitions into Southeast Asia," he said.

Initially the companies are shifting the final assembly and testing of their products out of China, Berkowitz said. Next they may move over the part of the process that involves putting components on printed circuit boards. Eventually, they'll move what he calls the mechanical process, the making of enclosures and plastic and metal parts that go into devices.

It's unclear when or the extent to which the manufacturers might move the production of the perhaps the most important tech product, smartphones, out of China. But because it's such a huge industry with so few phone manufacturers these days, that move is likely to take place more slowly than other products, Berkowitz said.

"I think they're going to be much more strategic and slower in that process," he said. "Although I would expect, based on what I've heard, they've already started."

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