Trump may not have many fans in the c-suites of corporate America but they are certainly helping his administration’s push back against China’s predatory mercantilism.
Larry Fink, chairman and CEO of BlackRock, said in an interview Friday that companies are moving supply chains out of China now instead of waiting to see how the trade war plays out.
“We’re hearing from CEOs that more and more supply chains are moving out of China right now, ” Fink said on CNBC’s “Squawk Box” program. “People are not waiting, companies are not waiting to see what the outcome is.”
That’s a big reversal of the pattern that prevailed for close to two decades, in which U.S. companies increasingly implanted their supply chains inside China, even as labor costs in the Asian country rose well above its developing economy neighbors.
One reason China’s dominance in global manufacturing lasted longer than an examination of labor costs would suggest was an asymmetry in trade policy. China imposes heavy tariffs on imported goods, making access to China’s market difficult for goods made abroad. The U.S. has very low tariffs on most goods, only recently imposing serious tariffs on goods made in China.
The result of that asymmetry is that when a company hoped to sell goods in both the U.S. and China, it made economic sense to base manufacturing in China. That meant jobs leaving not only the U.S. but also Mexico and Canada. And it meant that jobs that went to China stayed their rather than chasing down cheap labor costs.
The tariffs on China have changed that calculation, raising the costs of manufacturing in China for companies that sell goods in the U.S. This has been a boon to Taiwan, Vietnam, and other Asian nations. And it raises the pressure on China to at least begin to comply with the U.S. demands that it abandon its unfair and illegal trade practices.
More than 50 multinational companies are moving production out of China, including Apple, Nintendo, and Dell, CNBC reported.
Companies began announcing in May that they would move from China to Vietnam, as China and the U.S. stepped up tit-for-tat duties.
…At the same, the Chinese economy is starting to lag, having grown just 6.2% in its second quarter. That’s the weakest rate in at least 27 years. Trade data released last week showed China’s June exports fell 1.3% year over year due to the tariffs.
“I do believe the trend in China continues to be downward, ” said Fink, co-founder of the world’s largest money manager. “I think long term, China knows they need to find ways to stimulate more of their domestic economy.”
U.S. Treasury Secretary Steven Mnuchin said this week that he was scheduled to have a telephone call with Chinese officials Thursday. The White House has not yet revealed what the outcome of that call was. Mnuchin said that he expected it would lead to a talks in Beijing between U.S. and Chinese officials in the near future.