Employees Work on Solar Panel Production at Risen Energy Co., Ltd on February 21, 2019 in Ningbo, Zhejiang Province of China.
Zhejiang Daily | Visual China Group | Getty Images
President Trump rattled Wall Street when he demanded U.S. firms move production out of china. But many have already taken steps to reach, and, in earnings calls just over the past month, the executives have signaled plans to further diversify their supply chains amid the intensifying trade war.
On Aug. 23, Trump took to Twitter, ordering American companies to "immediately start looking for an alternative to China" and urging them instead to start making their products in the U.S. In doing so, he cited the International Emergency Economic Powers Act (IEEPA) ̵
Trump doubled down on Friday, attacking General Motors for its significant presence in China and questioning whether the automaker should move the operations to the US
"Sometimes you've got to take such measures," White House Economic Advisor Larry Kudlow said alongside Treasury Secretary Steven Mnuchin at the G-7 meeting in France. Kudlow added that American companies should head the president's call to leave China.
No U.S. The president has invoked the law as a leverage in a commercial dispute, flying alone to north commercial ties with one of its largest trading partners. Indeed, over the past century, U.S. administrations have mainly deployed IEEPA to prosecute drug trafficking or financial terrorism through sanctions or other economic penalties.
It is not clear how, or under what authority, Trump could implement this directive. If he were to push further, companies would likely challenge the order, leading to litigation. And, even then, it's uncertain how a court would rule. Some analysts argue that the law allows the president to carry out certain actions limiting companies' business in China, by blocking future investments, even if it did not allow the Trump administration to outright order them to relocate.
Business plans upended  US companies have already started taking steps to diversify production amid flaring tensions over the past year, but this latest command forces a myriad of industries to grapple with escalating trade uncertainty.
President Trump said last week he would raise existing duties on $ 250 billion in Chinese products from 25% to 30% on Oct. 1. Additionally, tariffs on another $ 112 billion of Chinese goods, which were set to take effect on Sunday, would now be 15% instead of 10%. Weighed down by a protracted trade dispute over the past year, China has relinquished its top spot as America's largest trading partner and now sits in third place.
Few companies are planning to move completely out of China. Doing so would prove particularly disruptive to America's industrial and technology heavyweights that rely on China's manufacturing base as a critical part of their supply chain. China still makes roughly 25% of all manufactured goods around the world – in part because of the difficulty in finding a sufficient workforce on other countries' factory floors.
Given the proximity to China, Southeast Asian countries including Vietnam, Indonesia and Malaysia have attracted attention in recent months as potential alternative sourcing destinations. A handful of firms have successfully shifted some of their production to these places, but many have been stifled by a dearth of specialized supply chains and labor shortages (in Cambodia, over 40% of all goods inspected last quarter did not meet inspection standards).
Take Boeing for instance – The Seattle-based aircraft maker doesn't look poised to leave the Chinese market any time soon after opening a plant for the 737 Max jets late last year. Moving production could also put Boeing at risk of ceding ground to rival Airbus, which is competing heavily in the Chinese market. Boeing's business is estimated to add more than $ 1 billion to China's economic each year. The company delivered 200 new 737 Max planes to the Chinese airline Xiamen last fall.
Apple is another prime example. Most of the technology giant's products are built in China, and its largest supplier Foxconn produces the lion's share of the company's iPhones in 29 facts in the central province of Zhengzhou. Taken in total, roughly 50% of Apple's supplier locations are based in China, up 5% just in the past four years. It would take years for Apple to leave China altogether and could clear the way for competitors like Samsung to eat into its market share. Apple also notoriously failed to build high-end computers stateside – stymied by a lack of suppliers that could make the right screw .
Still, Apple has reportedly asked its major suppliers to evaluate the cost implications of moving between 15% and 30% of their production capacity from China to countries in Southeast Asia. That's in part because its smartwatches and AirPod wireless headphones could face a 15% tariff starting Sept. 1, while a tax on the iPhone could take effect on Dec. 15. America's other largest technology firms are following Apple's lead. Computer makers HP Inc. and Dell Technologies are reportedly contemplating moving up to 30% of their notebook production out of China. Antonio Neri, CEO of Hewlett Packard Enterprise, told CNBC this week that the company managed to mitigate the tariff impacts this past quarter in large part due to a diversified supply chain. And, just yesterday, multiple outlets reported that Alphabet-owned Google is moving production of its Pixel smartphone, the fifth largest smartphone brand in the US, to Vietnam, starting as early as this fall. Google also plans to eventually move production of most of its hardware that is bound for the US to Vietnam.