Market Commentary

Trade War with China – Is it Good for U.S. Manufacturing?

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Western companies in the past moved a massive amount of manufacturing to China mostly because of the costs. Today those cost differences have shrunk and is estimated to be an advantage of only about 5%. Add to that the current tariffs, theft of intellectual property, and political considerations, the cost difference no longer is a factor.

It is relatively easy to move low-value manufacturing and this is already happening, as places like Thailand and Indonesia have much lower labor costs. It is the high-end manufacturing with its complex supply chain that prevents an easy move back to the U.S. For instance, Apple products have 198 global companies with 759 subsidiaries located in 16 countries that make various parts of their products. Only 2.2% of the parts are supplied from China but China assembles the products.

Do not expect a massive overnight return of manufacturing in the U.S. but you certainly can expect it to happen as China is not the lure it used to be.

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