‘Deep-Rooted’ Supply Chain Has ‘Very Few’ Moving Production Out of China, Says Jabil
Despite three rounds of Section 301 tariffs and the threat of a fourth, “very few customers are moving existing production out of China,” said Mark Mondello, CEO of supply-chain services provider Jabil, on a fiscal Q3 earnings call Tuesday afternoon. The “deep-rooted, mature supply chain that's foundational to China” has most customers staying put, he said.
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Many Jabil customers also “don't see a reasonable payback” from shifting sourcing elsewhere, plus “a decent percentage” of their Chinese production is “for final consumption in geographies other than the United States,” said Mondello. Some customers decided “to ramp some of their new products” in countries of origin other than China, he said. “I think that's really healthy. It's really good for us because it continues to help us balance factories and factory loading.” Jabil shares closed 10.2 percent higher Wednesday at $30.12.
Mondello and Jabil's customers want “things to get settled, and settled as soon as possible, between the U.S. and China,” he said. “If things got really, really bad, either short-term or long-term, I think it's going to be tough on everybody, us included, but let's hope that that doesn't occur.”
When "actual negotiations begin again" between the U.S. and the Chinese, "I can't say at this point," testified U.S. Trade Representative Robert Lighthizer Wednesday before the House Ways and Means Committee. After President Donald Trump tweeted Tuesday that he and Chinese President Xi Jinping would meet during next week's G20 summit in Osaka, Japan (see 1906180029), Lighthizer plans a phone conversation Thursday with his Chinese "counterpart," Vice Premier Liu He, he told ranking member Kevin Brady, R-Texas.
The USTR said he and Treasury Secretary Steven Mnuchin expect to meet with Liu in Osaka before the Trump-Xi meeting at the G20. "We're talking. We're going to meet." If the U.S. and China "can resolve these issues in a way that improves this relationship and preserves the competitive advantage of the United States, we have an obligation to do that," Lighthizer said.
There was "a lot of good work done, a lot of trust built up," during months of negotiations that "stopped," said Lighthizer. Talks reached an impasse last month after the Trump administration accused China of reneging on previously settled terms (see 1905060015). "They're very tough negotiators," said Lighthizer of the Chinese. "Very professional. We're certainly willing to engage."
Xi agreed to meet with Trump during the G20 "to have an exchange of ideas on fundamental issues concerning the development of bilateral relations," said a Chinese Foreign Affairs Ministry spokesperson Wednesday. "As to the exact agenda for the meeting, I could not foretell as I'm sure you understand, leaders will talk about whatever they see fit to discuss." China thinks "the entire world would like to see the two sides reaching a deal," said the spokesperson. "President Xi agreed that the two teams would maintain communication."
Lighthizer "absolutely" supported Trump's threat to impose tariffs on Mexican imports to reduce the influx of migrants through the southern U.S. border (see 1906030041), he told Ways and Means Chairman Richard Neal, D-Mass. Lighthizer disagrees with critics who warned that the Mexican tariff threat would endanger congressional ratification of the U.S.-Mexico-Canada Agreement on free trade, he said: "I don't know why it should."
Trump had the legal "rationale" for imposing the Mexican tariffs under the International Emergency Economic Powers Act, said Lighthizer. If under the statute, "you believe there's a crisis and you have to deal with it in some way, you do what you have to do," he said. "I support the president on that." Lighthizer told a Senate Finance Committee hearing a day earlier under similar questioning that he hadn't given the Mexican tariff threat "five seconds of thought."
Lighthizer conceded to Neal he isn't an "expert" on the statute: "We ought not to lose sight of the fact that the issue was satisfactorily resolved. The Mexicans are happy. The United States is happy. The crisis seems to have been averted, and we're moving in the right direction."