Very Painful Trade War Has Tech Suppliers Moving Out of China

HP laptop maker Inventec said it will to shift production of notebooks for the U.S. market out of China within months, according to Bloomberg.

Inventec will move its entire American-bound laptop operation to its home base of Taiwan, President Maurice Wu said, the biggest migration since Donald Trump declared tariffs on $300 billion of imports will kick in next month. It wants to complete that wholesale transition within two to three months, he told investors. Wu’s company assembles Apple’s AirPods and produces notebook computers for HP, which accounts for an estimated third of its revenue.

From Inventec to Apple-assembler Hon Hai, Taiwanese companies that make most of the world’s electronics are reconsidering their reliance on the world’s No. 2 economy as Washington-Beijing tensions simmer. Rising tariffs on Chinese-made products threaten to wipe out their margins and up-end a well-oiled, decades-old supply chain. Microsoft, Amazon, Sony and Nintendo are said to be among those now weighing their options away from the line of fire, such as Southeast Asia and India. Google has already shifted much of its production of U.S.-bound motherboards to Taiwan.

Inventec’s shift marks one of the most dramatic relocations since Trump announced his decision to slap 10% tariffs on $300 billion of Chinese imports starting in September. Spurred on by clients, which include household names like Dell and Nintendo, many Taiwanese contract manufacturers are now drawing up contingency plans, shifting select assembly operations or exploring alternative venues.

Compal Electronics CEO Martin Wong said his company, a rival to Inventec, has also shifted some notebook lines to Taiwan and was considering investing more in Vietnam should tariff-conflicts persist. Quanta Computer Chairman Barry Lam told reporters his company is definitely re-locating some business to Southeast Asia, though he didn’t mention a timeframe. Chief Financial Officer Elton Yang said Quanta will for now aim to satisfy customers’ demands for production outside of China with their Taiwan facilities.

The trade war threatens to disrupt a complex global supply chain involving many countries beyond just China and the U.S. Many components that go into devices aren’t made in the U.S., despite being designed there. Still, few major manufacturers have moved output in truly significant amounts and China’s status as the world’s production base for electronics is unlikely to diminish anytime soon. Foxconn has said it has enough capacity to make all iPhones bound for the U.S. outside of China if necessary, although Apple has so far not asked for such a shift.