Vietnam: A Strategic Solution to the U.S./China Trade War
April 22, 2019
- Author: Candi Hamilton Walker
March/April 2019
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United States and Chinese companies spent much of last year facing uncertainty because of the escalating trade war between their governments. On July 6, 2018, the U.S. imposed 25 percent tariffs on more than $34 billion on Chinese products including solar panels, semiconductors and electronics. Suddenly, U.S. businesses dependent on Chinese goods had to seriously rethink their supply chain to remain competitive in the face of steeply rising prices. As of late February, there were U.S. tariffs between 10-25 percent on $250 billion worth of Chinese made products.
Other Asian nations have stepped up to meet changing demand. Suppliers in the region are building, buying and expanding manufacturing capabilities in emerging markets to minimize tariff-related disruption and cost increases.
Emerging Economies
Not only large economies such as Japan and India are offering alternatives. Emerging manufacturing centers like Burma and Vietnam are bolstering existing manufacturing capabilities and leveraging decades of infrastructure investment and business-friendly economic policy. Along with American customers, manufacturers with production centers in China are looking at these alternatives to supplement their capacity and give them more flexibility in delivering non-tariffed goods to the U.S. market.
Redrawing the Supply Chain Map
U.S. companies and their overseas suppliers are working together to explore viable alternatives to minimize the cost implications of tariffs.
GRE Manufacturing, a leading Hong Kong OEM/ODM contract manufacturer of electronic products and electromechanical components is an example of this approach. With tariff costs at the top of mind for supply chain managers at US companies, GRE Manufacturing is strengthening its support for trade compliance, tariff impact analysis and relocation planning. GRE undertook a major expansion of its Vietnam factory to help customers avoid import tariffs and build long-term cost advantages without sacrificing quality.
The GRE Manufacturing factory located in Binh Duong Province is an ISO 9002, ISO 13485 and ISO 14000 certified site, with more than 120,000 sq. ft of production space. The location will have state-of-the art capabilities to support plastic injection, SMT, PCBA, tooling, testing, packaging and transformer winding services – ready to produce anything from LED lighting controllers, power supplies and transformers to consumer electronics, DC motors, and medical devices and parts.
The GRE Manufacturing factory located in Binh Duong Province is an ISO 9002, ISO 13485 and ISO 14000 certified site, with more than 120,000 sq. ft of production space. The location will have state-of-the art capabilities to support plastic injection, SMT, PCBA, tooling, testing, packaging and transformer winding services – ready to produce anything from LED lighting controllers, power supplies and transformers to consumer electronics, DC motors, and medical devices and parts.
Vietnam-based Manufacturing
According to Richard Fong, GRE Manufacturing’s executive director, “Vietnam is a very natural and advantageous location for us to increase our manufacturing capabilities. Not only are Vietnamese goods exempt from the current tariffs imposed on many Chinese goods bound for the U.S.; we also find a highly qualified and educated workforce, a favorable tax environment, and enough high-quality logistics and transportation support on both the supply and dis tribution ends of our business.”
Vietnam has seen impressive growth in its manufacturing segment, which added more than 1.5 million jobs in just two years. And more than 50 percent of Vietnam’s population is under 35 years old. These young workers are the beneficiaries of significant investment in education and training opportunities.
Further, positive ratings from the World Economic Forum and World Bank indicate good health of Vietnam’s investment climate. The country is continuing to reap the benefits of a low corporate tax rate which was reduced from 32 percent to 20 percent in 2003.
"In short, Vietnam as a country and a workforce is perfectly positioned to deliver the sophisticated electronics goods and components to meet global demand,” GRE’s Fong said.
Navigate the Trade War
The new tariff environment is having a measurable effect on both U.S. and Chinese businesses. For U.S. companies, it’s important to ask the right questions of your Chinese vendors to identify areas of tariff exposure. Here are three questions to ask vendors:
- Are there any material alternatives in the manufacturing process that will minimize the effect of tariffs without impacting quality or performance?
- Do you operate manufacturing facilities in alternate locations?
- Could you transition manufacturing to those locations with minimal disruption?
To learn more about GRE Manufacturing and its Vietnamese manufacturing capabilities visit gremanufacturing.com/gre-vietnam.
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