Moving Production Out of China 'Sounds Easy,' but Entails 'Massive' Disruption, Says Jasco
The Trump administration’s trade policy “fails the reality test” when it encourages U.S. importers to escape the Section 301 tariffs by sourcing products from countries outside China, commented consumer tech supplier Jasco Products, as posted Thursday in docket USTR-2019-0004. Jasco's comments were dated Monday, the same day it testified at the List 4 public hearing on the same panel as CTA, as the association had requested. Jasco had to cut its monthly employee bonuses by half when 80 percent of its products became exposed in the first three rounds of 25 percent tariffs, said CTA.
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Moving production out of China “sounds easy,” said Jasco. “But implementing such a massive transition on thousands of existing products across dozens of factories requires huge commitments of time and resources” that will rob the company of its ability to grow, it said. Jasco’s also can't “expand its employment base in the US, provide lucrative profit-sharing programs for its team members, maintain everyday low prices for American consumers, and support charities that provide tremendous social good,” it said.
The Office of the U.S. Trade Representative didn’t comment Friday on Jasco’s filing. The administration is trying to do many things to make the tariffs as “painless” as possible for U.S. companies, testified USTR Robert Lighthizer before the Senate Finance Committee June 18 (see 1906180038). Moving production to the U.S. would be a sure way for American companies to escape the tariffs, he said.
There’s a dearth of factories outside China “with both the requisite technical expertise in Jasco’s categories and available capacity anywhere in the world,” said Jasco. The supplier would need to invest “tens of millions of dollars to ramp up production in other countries to replace its existing manufacturing base in China and the process will take many years,” it said. Tariffs would eliminate or “dramatically reduce Jasco’s profits, further depriving it of the cash necessary” to fund the transitions, it said.
Jasco runs a complicated business, so it lacks the “ability to quickly make changes to its supply chain,” said the supplier. Companies like Apple and Fitbit “produce high volumes of a few items in a handful of factories,” it said. But Jasco “focuses on small solution categories and carries approximately 3700 items that individually are relatively low volume,” it said. It spent decades “cultivating long-term relationships with over 40 manufacturing partners in China,” many of which “have grown with Jasco to support our size and scale,” it said.
The company’s significant exposure to the first three tariffs lists and now a possible fourth forced it to “aggressively” pursue “non-China alternatives,” and it’s “actively evaluating several dozen suppliers outside of China,” said Jasco. “This process will take years and tens of millions of dollars along with extensive business disruption due to the time and resource commitment involved.”
Even if Jasco succeeds in finding non-Chinese sourcing, there’s no “guarantee” it would avoid the tariffs, “since Chinese factories supply most of the components used in Jasco’s products, it said. Jasco spent six months “qualifying” a factory in Vietnam to produce coaxial cable, “one of its simplest product lines,” it said. “In the end,” the Vietnamese factory “was still extruding the cable in China.”
Finishing and packaging the raw-extruded cable in Vietnam didn't “meet the criteria to avoid the Chinese tariffs,” said Jasco. “It will take at least another six months for the supplier to start extruding cable in Vietnam and Jasco will continue to bear the full impact of the tariffs until then.”
The administration’s “disruptive manipulation” of the market, through its use of tariffs as a trade weapon, “generates an artificial urgency to move production out of China,” said Jasco. The company's “rush to beat competitors out of China and avoid losing market share to competitors that already happen to manufacture elsewhere likely results in more mistakes than usual,” it said. “The fact that Jasco has struggled to quickly move production of simple commodity cables out of China indicates the challenges it faces on its more complicated categories such as smart home products that contain proprietary chipsets only available in China.”