Qingdao, China port container terminal. By tcly @ Shutterstock.com
In response to tariffs on Chinese goods, companies such as Intel, Apple, and Amazon are said to be considering alternatives for their supply chains. The uncertainty isn’t good for anybody, but doesn’t paint a positive picture for Chinese manufacturing sector. Li and Fung CEO, Spencer Fung, suggests firms are “very worried” about their Chinese business. Bloomberg reports:
China will see more factory shutdowns as the trade war that’s roiled the global supply chain exacerbates an exodus, said Spencer Fung, chief executive officer of Li & Fung Ltd. The company, which designs, sources and transports consumer goods from Asia for some of the world’s biggest retailers including Walmart and Nike, is being pushed by American clients to shift production out of China.
“U.S. clients are definitely very, very worried,” Fung said in an interview with Bloomberg. “Everyone is making razor-thin margins already and most people have a huge percentage in China. So if the biggest source increases the price by 25%, they are worried,” he said, referring to the scale of tariffs threatened on all Chinese imports to the U.S. by President Donald Trump.
Though Fung didn’t specify Walmart by name, the U.S. retailer is the company’s second-biggest customer after Kohl’s, accounting for 7.6% of revenue, according to Bloomberg data. A spokeswoman for Walmart declined to comment.
Seismic Shift
Because of its position as middleman connecting American retail giants to low-cost Asian factories, Li & Fung has a unique, ground-level perspective of the seismic shifts taking place around the world due to the trade war. Although the U.S. and China have resumed talks on a deal, there are growing signs that the global supply chain, long reliant on China as the factory to the world, is being permanently transformed. Intel has said it’s reviewingits global supply chain, while others including Apple and Amazon are reportedly doing the same.
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Jeremy Jones, CFA
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