Trade War Effect: Video-Game Console Makers Microsoft, Sony & Nintendo Prepare to Move Production out of China

The bottom lines in a very competitive business are threatened.

By Adam H. Williams, Senior Associate at E911-LBSLBSglobe.com, for WOLF STREET:

Expected in 2020 is the release of 9th generation of video game consoles, and trade war concerns are affecting console as well as PC manufacturing in a big way. Currently over 96% of console production takes place in China – but with new 25% tariffs, confusion around if these will apply to game technology, and the possibility of additional issues are driving game corporations to diversify their assembly outside of mainland China, possibly leading a larger exodus of manufacturers.

Console Manufacturing                                                        

PC and Consoles are the bread and butter for gaming platforms of choice. Consoles tend to be loss leaders or break-even products for producers; Sony, Microsoft and Nintendo have been known to make little if any profit off hardware, requiring large investments in R&D and production, and a return on a per-unit basis takes years.

Console economics is about market share, becoming that generation’s platform of choice, and making the money off of games and licensing agreements. Lately these consoles have diversified into live services which are quite profitable.

The trade war couldn’t have come at a more significant time, as 8th generation consoles (PS4, Xbox One, WiiU/Switch) are all nearing cycle end. Most watchers think 2020 will be the year of new consoles – meaning, to make these tens of millions of high powered computing machines, supply lines need to be defined, resources procured, assembly lines built, and products boxed and shipped all on tight schedules with the highest quality – all at the right price.

The big players have all sent a letter to the Office of the US Trade Representative, requesting exemption from tariffs. Manufacturers recognize that tariffs would not only apply to new systems but all systems, with legacy systems often continuing production for several years – thus providing tariffs with multiple pain points.  However, with recent news that Apple will not be given trade tariff waivers, it seems unlikely exemption will be granted to the industry.

Price, Quality, and Game Catalog are the main factors in console purchase. And manufacturers, looking at the 25%+ tariff, are faced with a serious dilemma on price: Either taking a (bigger) loss or passing it to consumers. With expected prices between $300 and $500+, plus regular tax, accessories and games, these are serious investments to the typical buyer, easily to the tune of a $1,000 initial purchase.

In their letter to the Office of the US Trade Representative, manufacturers estimated the yearly impact at $840 million. This estimate was derived from a Consumer Technology Association report, which found that the 25% tariff would result in 19% increase in consumer price, reflecting just how dependent the sector is on China. This is $56 dollars, per console, assuming an average console price of $294. This price is low when compared to expected 9th gen console prices, suggesting the 25% tariff would result in over $1 billion USD per year as long as the tariff is in place, particularly in 2020-2021 as the new cycle starts and price is most critical.

Console sales cycles last 7-10 years on average, and given that consoles are break-even at best, you’re looking at serious losses either from lost sales or per-unit loss to the bottom-line as long as tariffs are in force. For perspective, about half of all consoles are sold in the US, and 8th Gen US sales were over $40 billion in sales, so at 19% potentially upwards of $7 billion in additional cost for the total cycle would occur if tariffs were to become permanent. Consoles are also often subject to additional tax and export controls due to high performance and potential military applications.

The 8th generation console global sales, 2012 – 2019, amounted to about $70.5 billion:

Thus companies are making moves, and Nintendo is leading the way, setting precedent by announcing moving 30% of production of the Switch to Vietnam. For Microsoft’s Xbox and Sony’s PlayStation next gen products, there is still no official word on manufacturing locale, though both companies have indicated that tariffs are an issue and are considering alternatives to China, particularly as they already need to retool anyway, and to stay in China and lose a bet on tariffs going away could cost them billions.

Meanwhile, Google and Amazon both have new forays into the game space, and are likely rumored to be looking at places not Mainland China. Console competition is high – with new entrants trying their hand at gaming, they need to be cost wary:

  • Google’s STADIA is already getting lackluster reception, and a high price could be fatal.
  • Little is known about Amazon’s foray into game streaming and development, but any hardware or hosting tariffs could impact their plans.

It’s not just these majors – there are a slew of third-party manufacturers – for controllers, accessories, games and more, all built around next gen hardware, and all likely reconsidering their options.

Production outside of China would have been unthinkable to most corporate boards 10 years ago. Even if Trump expands his trade war to other locales; currency and labor costs may still be sufficient motivation to move production. As is, the threat of tariffs should weigh heavy on any console manufacturer’s strategic plans.

Where’s production moving to?

Taiwan (Foxconn), Vietnam (Nintendo), and Thailand (Microsoft, HP) all seem to be popular, with some looking at Indonesia (Microsoft) and India (Apple) as well. Each company seems to have a country of choice, which is interesting in that no one “new” country of choice is emerging. Anywhere with a tech industry, good labor, and friendly regulations appear to work well. Reminiscent of the Asian Tigers, South East Asia stands to benefit greatly, as these new facilities will bring jobs, goods, tech and training.

I for one would imagine many SE Asia countries are trying to take advantage of the current Trade War turmoil and pushing heavily to get next-gen consoles manufactured in their country. And if they aren’t, they should be.

Big Impacts to Bottom Lines

With Billions of Dollars on the line, and years of production jobs, the threats of tariffs to next gen systems are no joke. If corporations chose wrong, and stay in China and are hit with tariffs, rising labor costs, supply or quality issues, or just uncertainty, it may cause them to lose the cycle’s console war.

This could do some serious damage to their bottom line. Tariffs aside, with rising labor costs in China anyway, we may see gaming consoles leading the way out, towards other lower cost, politically “stable” locales with the PC and mobile market close behind. This too may lead to new markets and opportunities as the global gaming landscape continues to evolve. By Adam H. Williams, for WOLF STREET

Semiconductor sales are in the deepest plunge since the Financial Crisis. But unlike the V-shaped recovery in 2009, this one has been persistent, and there is no recovery in sight. Read…  What Plunging Global Semiconductor Sales Just Said about Autos, IT & How the Economy Reacts to Uncertainties

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  63 comments for “Trade War Effect: Video-Game Console Makers Microsoft, Sony & Nintendo Prepare to Move Production out of China

  1. Aug 7, 2019 at 10:54 am

    Hi Adam,
    Thank you for this interesting article. You seem to know quite well the sector. Could you give your thoughts about Gamestop ? This end-of-the-cycle has been quite damaging for their number and I know we will have to wait for 2020 Q4 to see the new consoles then the new games then the new used games which is were Gamestop made his money in the past. As of now the stock is priced has if the company was going to disappear – still one of the most shorted stocks in the markets.

    • Adam Williams
      Aug 7, 2019 at 6:07 pm

      Hi Charles – I could talk at length about Gamestop – but a few quick thoughts.

      As you say, it’s the end of the cycle so sales are lagging, on top of it the switch to digital downloads and live services is really putting on the pressure particularly the used market.

      They have recently gotten new executive leadership and they are making some major shakeups. The previous leaders went all-in on various merchandise which did not do very well. They recently announced they would be revamping the concept to make it more of an experience and akin to what games stores used to be – which given Gen Z’s penchant for shopping as an experience, and Millennial nostalgia, may be able to survive and come back, as other than Big Box they are basically the only game in town. Hard to say – but next year console sales will likely be a boon, particularly if they can somehow get exclusives on games/consoles. I usually get my hardware from there – wouldn’t trust a shipper with the package.

    • Aug 7, 2019 at 11:22 pm

      My 2 cents – GameStop is in an industry with particularly intense competition from online vendors.

    • Aug 9, 2019 at 2:31 am

      Thank you very much for your comments Adam. I have the same point of view ; we ll wait the release of the new consoles in 2020 to see what happen. Kind Regards. Charles

  2. Iamafan
    Aug 7, 2019 at 10:59 am

    Not sure anyone needs a console they already didn’t have. I keep on paying for games and my kids buy more software than hardware. I don’t mean buying crazy points, I mean real software. I hope that is made in USA or Japan.

  3. nick kelly
    Aug 7, 2019 at 11:07 am

    Interesting. Two thoughts: a factor in deciding to move with attendant costs is that these tariffs could vanish in 5 minutes. The whole thing is a Trump whim, overruling advisers including former economic adviser Gary Cohn, who quit when the original tariffs were announced. Note that in all the discussion about where to move, no one even mentions the US.
    There is no consumer electronics industry in the US and there isn’t going to be. (ex. chip design, which employs a very few specialists and no blue collar workers)

    Even if there is not a five minute conversion, as the hard dead- line for the US election draws near, watch Trump quickly become much less aggressive. So console maker A who moves from China may find the move was unnecessary, it was just a bluff or bargaining chip. No maker B who didn’t move saved money.

    Second: I thought China itself was a large game market. Will the decision to move out of China to somewhere like Vietnam where there isn’t a large market cause a boycott. official or not, of that manufacturer?

    • nick kelly
      Aug 7, 2019 at 11:10 am

      Typo: ‘No maker B’ who didn’t move should be ‘So maker…’

    • Adam Williams
      Aug 7, 2019 at 6:12 pm

      I personally do not see the trade war ending anytime soon, but even then – I am a believer of not putting all my eggs in one basket. I’d love to see electronics return to the US, but that’s not going to happen overnight.

      Nintendo’s strategy to move 30% of production to Vietnam allows them to diversify, and the units they ship to the US would be tariff-free – while the rest of the world could get the Chinese made models. It also allows them to build out relationships and expertise without throwing the baby out with the bathwater. Seems prudent and rather clever to me.

      To your second comment – Chinese are huge gamers, but it’s all mobile and PC – consoles are taxed extremely high internally and were previously banned. On top of that, your games need official approval which has not been forthcoming lately. Nintendo and Sony, in particular, have indicated they’ve basically walked away from the market in the past.

      • Scotts
        Aug 7, 2019 at 10:55 pm

        Hi Adam. Great article and agree on Nintendo’s strategy being clever, however, I read a Bloomberg article indicating Vietnam is full; no capacity. Also you could imagine how labour rates could skyrocket there.

    • char
      Aug 7, 2019 at 7:00 pm

      In China consoles only recently became legal and they are not popular.

      • p coyle
        Aug 7, 2019 at 10:32 pm

        judging by the sales numbers, sony is the one that has to commit to getting out of china. the microsoft can proportionately do what nintendo did, and move half its production and basically avoid tariffs.

        if the tariffs go away, sony might get screwed while the others still kept a heavy footprint in china and perhaps come out ahead on the deal.

  4. HR01
    Aug 7, 2019 at 11:14 am

    Adam,

    Many thanks for breaking this.

    If companies are limiting the search for new production facilities to just SE Asia this is short-sighted, at best. In this observer’s view, the entire region may be too hot to handle in the coming decade. China is itching for fights with nearly all of its neighbors. Also appears that Japan and South Korea may be on the verge of a trade war. Regional stability is wavering.

    Why oh why, do these companies not look somewhere on this side of the globe? Surely there are options in the Americas? South? Central? Even North? Between 3-D and robotics advances, ten years from now labor costs may be a small piece of the COGS.

    • Kent
      Aug 7, 2019 at 4:08 pm

      Only Asia has the technological know-how and capacity to produce this stuff at scale. The entire world, especially including US companies, have been heavily investing in technical know-how and manufacturing scale in Asia for decades.

      These are complex machines with complex, precision manufacturing requirements and supply chains and have to be produced by the tens of millions. We don’t know how to do that.

    • Adam Williams
      Aug 7, 2019 at 6:20 pm

      Thanks, HR01 for your positive feedback! It’s truly appreciated.

      I too have wondered why the Americas is not seen as a good locale for production. I speak Spanish and a tad bit of Brazilian Portuguese and have spent many months traveling south of the border.

      My short answer? I think it’s because it’s generally not taught in Business School.

      I have suggested in the past that Latin America would be a great market and place to manufacture – but generally, I’ve gotten blank or incredulous looks. Even the more forward-thinking people seem to have trouble on how to sell it within corporate culture and the CEOs and VPs I know are mostly retired ;-). I personally believe it’s because most large corporates are herd animals driven by meeting consensus, and the media has been blasting for at least 20 years that China and Asia, in general, is the place to outsource. This tune changed with the Trade War, but no new path forward has appeared. We see that in the different companies all eyeing a new country, vs all the same place.

      I could see that changing – relative stability, similar timezones, closer culturally, currency advantage, labor costs, and other reasons, but corporate psychology is a strange animal. I also don’t think Latin America is going a good job with PR and marketing this idea in the US or for the most part making it easy to do. I bet if a company tried to do electronics in the US they might be blown away with the number of well-intentioned and motivated applicants.

  5. weinerdog43
    Aug 7, 2019 at 11:18 am

    You can go to Game Stop (look in any deserted mall), or a pawn shop and find all kinds of used games and consoles at really good prices. Unless you are looking for the absolute latest system, why not save some bucks?

    • Aug 7, 2019 at 11:36 pm

      I’ve primarily used eBay for this for the last 5 years. Buy a game that was a hit a year or two or three ago, and you can often find it used in the $20-30 range after shipping.

  6. Senecas Cliff
    Aug 7, 2019 at 11:30 am

    It will not be as easy as it seems to shift production of these consoles to other countries unless they just use them as final assembly sites to avoid inbound U.S. Tariffs. The big deal about China is that it has the entire supplier network to build one of these consoles from the tool and die engineers, the injection molding and stamping shops, the specialty hardware, all the minor electronic items etc. Many of the parts in these units are not made anywhere else in the world anymore. These other countries are decades away ( if ever) from having the same industrial infrastructure as China. My guess is if they get moved it will be mostly for show to avoid Tariffs ( if that works).

    • Greg Hamilton
      Aug 7, 2019 at 12:38 pm

      I remember reading about the Hongqi limousine (the Chinese limousine for high level party members) and how the CCP at the time was unable to manufacture a V8 engine for the car. I believe the government had to smuggle Chrysler engines for that purpose. My how times have changed.

    • Harrold
      Aug 7, 2019 at 2:32 pm

      Electronics manufacturing started moving to Vietnam several years ago as their labor costs are 1/2 that of China’s.

  7. Petunia
    Aug 7, 2019 at 11:35 am

    With tariffs increasing the prices of goods coming from China, there is the additional burden of sales tax on the tariff. Is there any talk of an offset anywhere? The tariff will either be a boon to the states or a bust if people simply don’t buy.

    Also, Game Stop has been in decline for years now. I always thought it was from the decline in popularity of console gaming.

    • KGC
      Aug 7, 2019 at 12:39 pm

      Game Stop franchises are hurting because of two things, first is the ability of gamers to buy online, and second is because many games are no longer being sold as “hard” items and a strictly online. Remember these are consumers who live online. They are the least conditioned shoppers to go into a bricks and mortar facility. Owners of those franchises are screwed.

      • Prairies
        Aug 7, 2019 at 5:18 pm

        I found the new games make it harder to use the hard copies without being online. Requiring online profiles to use certain games. I could just buy a digital copy if I was connected in the first place.

        The next wave of games is focused on monthly memberships, companies are offering digital access to entire game libraries for a monthly fee. Subscribe when you plan on using it, cancel when you don’t – Netflix for games.

    • Tom
      Aug 7, 2019 at 2:39 pm

      I think you should search this site for the phrase “brick and mortar meltdown.”

    • Gadi
      Aug 7, 2019 at 5:10 pm

      all the kids are using ‘Steam’ to get their games.

  8. raxadian
    Aug 7, 2019 at 11:40 am

    Switch is not rearing cycle end, Nintendo plans to release a more powerful Switch but is still a Switch, not a bew console. Is like the difference between the PS4 and PS4 Pro. Oh and they are also releasing a Switch minu that only works in portable mode. And the Wii U has already ended it’s cycle for all Intent and purposes since there are no new games releases and all other those extra services like video streaming are gone or going to be gone soon.

  9. lobo lógico
    Aug 7, 2019 at 11:56 am

    Meanwhile, in Wisconsin, Foxconn deal is looking more and more insane.

    “Fiscal benefits to Wisconsin of Foxconn from tax revenue of new jobs, he indicates, “would offset no more than one-fifth of Foxconn direct incentive costs.” This is in part because Foxconn incentives cost six to 10 times more per job than typical Wisconsin incentives, by Bartik’s estimates. It is also more than three times higher than New York’s offer per job to Amazon and more than 13 times higher than Virginia’s per job offer to Amazon.”

    • Harrold
      Aug 7, 2019 at 2:33 pm

      It was pretty obvious the Foxconn deal was a sham from the beginning.

      • Teddy
        Aug 7, 2019 at 2:37 pm

        Trump was involved in a big sham. Shocking! Who’d have thunk it?

    • Mike G
      Aug 7, 2019 at 2:53 pm

      “Nobody could have expected” that a deal pushed by a corrupt Koch Brothers sock-puppet would fail to live up to the hype and be harmful to everyone except a few cronies.

  10. David Hall
    Aug 7, 2019 at 12:29 pm

    WSJ – MarketWatch reported China is no longer the United States’ top trading partner.

  11. intosh
    Aug 7, 2019 at 12:40 pm

    FYI: Sony announced a week ago they have sold a total of 100 million PS4.

  12. Old Engineer
    Aug 7, 2019 at 12:53 pm

    But wait…why impose tariffs against China if manufacturers just move to another country? Isn’t the goal of tariffs to bring production onshore? Surely the administration could see the shift to other foreign countries coming. So what is the actual goal of the tariffs, unless they are universal? What do they really expect to accomplish. I do not understand.

    • g
      Aug 7, 2019 at 1:31 pm

      Its not about on shoring all of it just some of it. Its going to be hard for a short time to break China’s back but when we do it will start a long hard road for them because stopping the intellectual property theft will eliminate China’s dominance in manufacturing and then the profits will roll in back into the US through protected intellectual property that creates the consumer value at the retail shops online and elsewhere. Apple Learned the hard way that if you have your competitor (Samsung in Korea) build your product for you, it should not be a surprise when they suddenly make products as good or better than yours LOL. Cisco discovered that when Huawei came out with routers that were so closely copied their software patches to fix Cisco problems worked perfect on the Huawei routers. LOL. Whoever made that decision earned the equivalent of the Darwin award for intellectual property. We the US didnt do that much different as a country for 30 years or so. We wanted cheap labor and got strait up theft instead. This powder keg for a Pres. is the only one with the raging corporate expertise to do what he is doing and he know what he started will cut China off at the knees or worse because the Chinese businessmen have already discovered how to outsource at the same time we leave so that is a recipe for a good old fashioned over the knee paddle spanking. LOL.

      • nick kelly
        Aug 7, 2019 at 2:05 pm

        ‘This powder keg for a Pres. is the only one with the raging corporate expertise….’

        I’m going to let that one speak for itself and just say: check China’s patent numbers and graduates in math, physics and engineering. Even as a percentage of its population not a second fiddle.

        • Old Engineer
          Aug 7, 2019 at 3:44 pm

          And, many of their engineers and scientists have been educated at some of the best universities in the world, the same universities American engineers and scientists are educated at. That, and the fact that most electronics today are based on chips made by a few manufacturers almost guarantees that similarly performing electronic products will have similar designs.

        • Fanta V
          Aug 7, 2019 at 3:59 pm

          Their numbers look impressive, that’s true.

          However, in my experience (US and UK) most patents are puff and are there to show investors that there is something solid underpinning their money.

          Furthermore, in the four trips I’ve made to china, I’ve not been blown away by anyone’s intellectual capability. The smartest I’ve met were very rare but truly smart (like in the west) the rest were really very average to put it nicely.

          And the culture there is to fake paperwork on an industrial scale, so I would not put much store in the data they put out about education rates or anything else (GDP for example).

          I work in electronic engineering, for context.

        • Kent
          Aug 7, 2019 at 4:14 pm

          I’m always amazed at the number of US patents being made by Chinese research scientists currently working in US universities. Stunning. The cat is well out of the bag.

        • IdahoPotato
          Aug 7, 2019 at 4:15 pm

          A total of 12 Chinese academic institutions have been included in the global top 100 of the sixteenth edition of the QS World University Rankings, released this year by London-based higher education analysts QS Quacquarelli Symonds.

          Since 2013, Tsinghua University has produced more of the top 1% most highly cited papers in maths and computing, and more of the 10% most highly cited papers in STEM, than any other university in the world.

      • Harrold
        Aug 7, 2019 at 2:41 pm

        He’s cutting the American farmers off at the knees too.

      • Wise guy
        Aug 7, 2019 at 2:44 pm

        Ah, that’s so sad. The Bosses set out to shaft the workers, throw them out of work, cost them their homes, destroy their lives, force their children to give up dreams of college and instead clean bedpans on the nite shift. And oh, the shock of it all, they are the victims because now they claim that they were robbed and that none of their MBAs or corporate lawyers saw it coming. I’m crying in my beer in sympathy for their pain. Oh, wait a minute, sorry, I can’t afford beer any more.

      • Mike G
        Aug 7, 2019 at 2:56 pm

        How are tariffs going to stop intellectual property theft? They aren’t going to curb industrial espionage or hacking.

      • tom
        Aug 7, 2019 at 3:13 pm

        Thanks for nailing it.

        How did we let wall street & politicians take down main street?
        And now they wail about trade “war” against CCP.

        Strange times we live in.

        • sierra7
          Aug 8, 2019 at 10:44 am

          Tom:
          “How did we let wall street & politicians take down main street?”

          Easy. Crooked dumb politicians, crooked, greedy economic system, two tiered justice system. Without the gullible dumbed down greedy public it may have still happened but might have been less destructive.

    • MCH
      Aug 7, 2019 at 4:46 pm

      This whole thing isn’t about bring jobs back to the US. Those are gone for good. It’s what you get when the focus shift to need for more artists, lawyers, and liberal arts graduates, and not scientists and engineers. And the narrative in the media has been all about how manufacturing jobs are old, and service is the thing that matters. No amount of tariff is going to change this and bring manufacturing back to the US.

      The only purpose I see for the tariff is to cause economic difficulties for China and force them to pull back. Because the loss of jobs is going to hurt, and potentially cause social unrest, so it makes China focus inward, not out.

      The parts about intellectual properties matters only a little bit, but if people thinks China is the only one around stealing intellectual property. Just look at the celebrated artist, Steve Jobs, and his famous one line about good artists copy (Samsung), great artists steal (Huawei and Apple). In fact, that’s really how Apple came about…. stealing the crown jewels from Xerox Parc.

      • nick kelly
        Aug 7, 2019 at 7:58 pm

        Reply to Fanta: no doubt a lot a Chinese patents are hot air although they would be hard pressed to beat the US. E.g the software patents re: business practice. Software patents have drawn US Govt scrutiny as a hindrance to industry. .

        But you can’t fake a rover on the moon and China’s Yulu “Jade Rabbit’ was observed crawling around the dark side of the moon five years ago.

        As for the science IQ of general pop, try asking if they know the difference between AC and DC, let alone Hertz. OK I’ll make it fair: ask just guys.

        • MCH
          Aug 8, 2019 at 12:20 am

          You know the real kicker is that your last comment would instantly be labeled misogynistic in the US, and the educators and media would be all over you about the need to have girls in STEM to break stereotypes, blah blah. If those people took half the effort to actually educate the students in the US in STEM rather than preach about systematic racism and built in advantage (not that those don’t exist), the student population in the US would be better off.

          Sadly, those same people who like to talk their heads off about STEM education doesn’t have the first clues about it. They are like the self proclaimed inventor of the internet. All talk, and no skill.

      • Greg
        Aug 9, 2019 at 7:24 pm

        Hi Adam,

        Excellent article and research behind the article. Wolfstreet is becoming a highly credible source for original research like yours.

        I have some existing electronic and injection molding manufacturing capability in the US midwest and would be interested in pitching these companies to see if they would be interested in a turnkey/captive manufacturing operation for their products. Would you have any interest in working on something like this? Our plant was certified TS16949 supplier to auto and other industries.

        I can give you some additional info if you contact me at shibumi2 at gmail.

        Thanls

    • char
      Aug 7, 2019 at 8:07 pm

      It is not a trade war but an economic war. Different purpose.

  13. Clementine
    Aug 7, 2019 at 2:34 pm

    It of course in no way improves the lives of Americans if these things are made in Vietnam or Taiwan or whereever. Oh, it inflates President Tax Hike’s big ego and he can claim he hit China, but that in no way improves the lives of any of us non-billionaires. It was Wall Street and the corporations that moved all of that production out of America and destroyed the jobs. Just like they’ve done in every other sector where they can do it. China was just an earlier version of Vietnam in that they were willing to take America’s jobs and money when it was offered to them on a platter. Wall Street and the corporate world have decided that no jobs will remain in America until Americans are willing to work as cheap as workers in Vietnam, China or any other place. But of course those same workers being paid low wages are supposed to keep the housing market afloat and buy a new car every two years or so.

    Trump’s huge mistake was always that he was fighting the wrong enemy. China was not the enemy. The enemy was Wall Street and the corporations. Inflicting a defeat on the wrong enemy by forcing corporations to shift their near-slave-labor operations to Vietnam does nothing for Americans.

    • char
      Aug 7, 2019 at 8:18 pm

      Vietnam is a medium sized country. It is to small to be ever a military competitor of the US.

      • p coyle
        Aug 7, 2019 at 11:11 pm

        afghanistan has held its own for a long time against the mighty empire. how big a country do you consider them?

        • char
          Aug 11, 2019 at 7:53 pm

          Is Afghanistan a military competitor.

  14. unit472
    Aug 7, 2019 at 2:49 pm

    I think the situation is moving well beyond trade unless it is in missiles. Hong Kong is spiraling out of control and Beijing cannot allow that nor will the US Congress countenance a Tianamen Square style massacre. If I had interests in China I would do my utmost to get them out now otherwise they will be stranded behind the Bamboo Curtain.

  15. Joe
    Aug 7, 2019 at 2:53 pm

    The name of the corporate game is who’s country will subsidize the best profit deal at the expense of its tax paying citizens…
    Can always impose more taxes on the people and what great donations our politicians gain from this.

  16. MCH
    Aug 7, 2019 at 4:37 pm

    It is interesting, the tide is subtly shifting back. At the end of the cold war, Bill Clinton famously said: “It’s the economy, stupid.” That phrase basically heralded in what we have today, countries focused entirely in on business concerns. Now, what you’re seeing is a sense that business concerns do not trump national security or foreign policy concerns.

    Somebody also figured out that other countries, but China especially is leveraging the desires of businesses to in turn impact world perception and the status of things. If someone said in 1990 that China would be the second strongest economy in the world in 30 years, they would’ve likely been laughed off the planet. To be fair, it’s not different from what other countries have done.

    But what this might portend to (especially if the foreign policy hawks keep in place for the next four years) is a shift back from the economic focused administrations. Instead, economics and businesses will be leveraged to put checks on other countries, and foreign policies similar to what happened in the Cold War will be important again.

    No, no one is going to start putting manufacturing jobs back in the US.
    But I am willing to bet that someone is thinking that if those jobs aren’t in China, then it hurts China as a whole, and perhaps it’ll force China to scale back its foreign policy ambitions (I think that’s an erroneous assumption) and may be not be as competitive. Overall, I think that’s a dangerous game to play, because it’s practically about trying to tear down other people’s house instead of making sure your own house is in order.

    Having said that, China kind of brought this problem on itself. Namely, comrade Pooh decided to open his mouth and yammer about how China is going to be self sufficient, blah blah before he actually got weaned China off of its dependence on exports, and essentially woke up the US to the China problem a little too early. Thereby undoing the work of Deng Xiaoping, who is probably rolling in his grave because of the baozi loving peasant from Xiamen.

    • Xabier
      Aug 8, 2019 at 2:57 am

      Correct analysis.

      From the point of view of the long-term strategists in the Pentagon, China needs to be not destroyed, but hamstrung, so it limps along and is plagued by internal discontent.

      The Chinese leadership boasted too soon ,and too loudly, as to what they would be in the international arena, and such hubris has its inescapable price.

  17. Aug 7, 2019 at 5:27 pm

    Good news for pinball machine manufacturers.

    • p coyle
      Aug 7, 2019 at 11:16 pm

      god i hope you are right!

  18. IronForge
    Aug 7, 2019 at 5:29 pm

    IMHO, Major Market Nation-States should impose Tariffs on Merchants selling wares and services InCountry.

    Outside of partial exemptions to SMBs, these OffShorings only Benefit the Labor-Arbitraguers and their Rentier-Financiers.

  19. lenert
    Aug 7, 2019 at 6:18 pm

    This is a matter of national security. Tariff exemption approved!

    • p coyle
      Aug 7, 2019 at 11:21 pm

      sadly, you might be onto something. beyond the obvious angle of keeping the populace amused and distracted, and therefore docile and oblivious, there is the whole “if the drone pilots don’t pay to train themselves, how can we field an effective military on this tiny budget” subcurrent.

  20. njbr
    Aug 7, 2019 at 6:28 pm

    Given the immense cost of these factories, their integrated supply chain, and the cost of a trained element of labor, what is the comparative cost of setting up a “final assembly and retail packaging” plant in a non-tariff country for shipment to the US market–and leave the real assembly untouched.

    I am highly suspicious of the well-publicized and almost instantaneous movement of production (considering the enormity of a real relocation). The US is just one segment of the global market these companies operate in–most of the world doesn’t care about US tariffs on China so complete relocation for temporary conditions in one country would be pretty rash.

    • fajensen
      Aug 8, 2019 at 2:15 am

      The requirements for “Made in X” are quite slack; with many detailed rules provided as anchors for gaming and lawyering. Usually, final assembly or even finishing is enough.

      Like surgical instruments being forged in Turkey, the sharpening in Germany makes them “Made in Germany” and therefore local, made by “our boys”.

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