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How an American Company Try to Escape Donald Trump's Tariffs for China: You Are Preparing for War

Companies like Capstone contribute over $ 200 billion in purchases in China of products made by China annually.

Hong Kong:

When Larry Slovene heard last year that US tariffs were threatening his electronics business in China, he knew setting up a store elsewhere would be a slogan, not an adventure.

A 70-year-old youth has spent half his life building supply chains in southern China to produce goods for American retailers. But he has never reconfigured one in the short term with tariffs hanging over his head.

"It's the hardest thing I've ever done in all my 30 years in business," said Sllove, president of Capstone International HK Ltd, a division of Capstone-based Florida companies.

"You have packaging, assembly, audit, labor, overhead, components, logistics, transportation," he said. "I moved from first gear to fourth gear very quickly."

A native of Long Island, New York, cut his teeth in Asia in the 1

970s. He then moved to Taiwan, then mainland China, to manufacture and supply electrical products for AT&T and Duracell, before becoming a buying agent for sports goods retailer Dick & # 39; s.

He joined Capstone in 2012 to manage its network of Chinese Hong Kong manufacturers.

Increasing labor costs and tighter regulations in China have already prompted him to consider moving his business elsewhere in Asia. But the trade war forced him.

Through dozens of interviews and a telephone, exchange of Whatsapp and email for one year, Reuters documented Slovenia's quest to root its supply chain operation, efforts leading to very close calls, bureaucratic headaches – and some good luck.

Sloven is just one of thousands of entrepreneurs who have been forced by the trade war to carry out their business operations in China in the largest single-generation supply chain change.

Companies like Capstone contribute over $ 200 billion in US purchases of electronics and machines made in China annually.

Long Diligence

When Washington imposed its first tariffs in July 2018, Capstone's major products, such as Capstone's major products, such as battery-operated LED bulbs and lighting, did not were on the list.

Nor were there any of Capstone's prototypes that Word sees as the company's future: "smart furniture" as a mirror that doubles as a touchscreen with internet access. [19659004] But his instinct was that relations between the United States and China were getting worse.

"You don't know what's going on in China," he said.

It has designated its landmarks in Thailand as a possible second production site. Extraction of raw materials locally was difficult, but at least they did not carry import duties. Setting up a business unit in Thailand was also inexpensive and fast, and some of the work could be outsourced.

An American sales clerk in Thailand introduced him to various local companies that could help.

"I can make products in Thailand," Slave said late last summer. But, he added, "it won't be easy."

In September, US President Donald Trump gave him an even better reason.

The total value of US tariffs on Chinese goods has been expanded from $ 50 billion to $ 250 billion, putting Capstone LED products at the cross of 10% levies.

Intelligent furniture, if manufactured in China , would have made a hit.

Soon after, a study by Amcham China, which represented

Slovenes' efforts in Thailand seem to have paid off. After numerous meetings, he opened a furniture factory and a fitter outside Bangkok.

Both had international experience and expanded to meet the growing demand from US companies. And while smart furniture was new to them, they were confident they could download it and were ready to invest.

Following a visit to the site in February, Sloven ordered components for its smart mirror to be shipped to Thailand. By mid-March, Capstone engineers were showing the factory how to assemble them.

"I'm not worried," Slave said in February. "I give him the information step by step," he said, referring to his partner in Thailand.

Even as Slovenia grows more optimistic, the urgency to leave China seems to be diminishing since 2019 began.

Trump and President Xi Jinping of China announced a cautious truce at the G20 Summit in Buenos Aires and it seems to be taking place. Officials from both sides offered a deal before the March deadline, and the threat of a tariff increase of up to 25% seemed remote.

But Slovan adheres to his plan.

"I don't think there will be a trade war, but that doesn't change things," he said at the time.

Slowly moving

The March deadline has passed, but tariffs have remained unchanged. This provided a breathing room for the Word.

He scheduled a series of pilot runways to check how well the Thai factory handled the installation. He also had to prepare for the audits of labor rights and environmental standards required by US retailers.

He estimated that it would take at least another six months.

"I'm going to start moving on a small scale because they" won't be able to do it right away, "Slave said." As much as they say, 'Oh, I can do this now' – I don't risk it. "

] More investment in tooling and shapes was required, but Thai companies agreed to bear the cost.

Despite what happened with the trade war, Words felt covered.

"You are preparing for war," he said. . "You are ready to be attacked."

Re-negotiation of China

Words also worked in China

Its suppliers in Shenzhen, Dongguan and Guangzhou were assured the commercial conflict would be resolved and unwilling to negotiate deals that would send components and raw materials overseas for assembly.

But Word continues to go forward in the plan. [19659004] In early April, Word invited Reuters to meet with his trade lawyer Sally Peng of Sandler, Travis and Rosenberg.

Pen described how Chinese factories were emptied while workers were laid off. Few owners have had the experience or resources to automate or find new export markets, so most have driven it, hoping for a trade deal. They "lose money every day," she says.

"They believe that eventually everything will come back," Slave said.

"I think in five years everything will be gone," Peng replied.

Investor appeal

On the same day, Slovene met with his lawyer, his Florida bosses announced the results of 2018 that reflected the effects of the trade war. Net income reached $ 12.8 million, which is less than $ 36.8 million in 2017. Net losses were $ 1 million, a gain of $ 3.1 million.

"Capstone faces challenges in 2018 unlike any in its history," Chief Financial Officer Gary McClinton

Meanwhile, the development of the smart mirror was in full swing. The prototype is considered the success of an electronics show in Las Vegas in January, and a PR agency and marketing company were hired to advertise the new product.

Then Trump raised tariffs to 25% on May 10.

For Words – and many others – the level of urgency has rebounded. A survey by AmCham China and AmCham Shanghai this month showed the number of companies that have moved production or are considering jumping above 40%.

To speed things up, Sloven introduced Thai assemblers to its Chinese suppliers. [19659004] He wanted to set the rules of the game and then let them interact independently. These meetings had to go well or everyone could fall apart.

Fortunately, he found that the two sides had something in common.

"A Thai man, his family is from China, so he speaks a certain dialect. And the factory in China – my supplier – and he speaks the same dialect, "Slave said." What at Home! "

After months of digging in his heels, the Chinese company finally gave up and agreed to deliver Word to Thailand.

Audits, Logistics

With the delivery of components and raw materials provided, the next big step was audits.

Thirty-five percent of the product had to be made in Thailand for the product to be available. to be considered Thai and thus exempt from US tariffs.

Certificate from an independent auditor would prove this, but the audit usually takes four to five weeks.

"I know what to do, but getting information is mind-blowing. These are supply chain issues that everyone in the world is

Delivery to the United States from Thailand takes 8-10 days longer than for China.

Despite the additional cost and time, Slava believes it will be able to make the product at the same price as China without tariffs. .

By mid-summer 2019, Word was convinced that most of his challenges had been overcome and that the smart mirror would be delivered on schedule on October 1.

But, he allowed, "you will always be the hiccup."

(Except for the title, this story was not edited by NDTV staff and was published by a syndicated feed.)

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