The Trade War Between the U.S. and China (and Its Effect on Rubber)

About the Trade War

Recent “trade war” talks in American politics have resulted in President Trump electing to impose tariffs on import goods worth an estimated $200 billion from China. At a minimum of 10% import tax rate starting on September 18, 2018, goods such as molding and processing machines for rubber, natural rubber, chloroprene rubber, isoprene rubber, and many other types of rubber parts and products have been included in the newly approved tariffs. Additionally, this rate will yet again significantly increase starting on Jan 1, 2019 to a tariff rate of 25% on these imported goods.

This move by the Trump administration will likely result in U.S. manufacturers moving their China-manufactured parts and products to other low-cost manufacturing countries in order to meet consumer price demands. To stay afloat on both global and national markets, corporations will look for ways to protect their margins by avoiding paying hefty tariff bills. The costly price of building manufacturing infrastructure in the U.S. means corporations will now turn their eyes toward other countries hungry to entice U.S. manufacturing and jobs to their country.

Rubber in Vietnam

Reportedly, many companies are already beginning to look to relocate manufacturing to China’s close neighbor, Vietnam. The global news magazine, Foreign Policy, reports that Goertek, a Chinese company known for supplying Apple Air Pods have already begun relocating their machines to Vietnam. Goertek looks to escape the tariffs by manufacturing in Vietnam instead, as talks between U.S. President Trump and Chinese President Xi Jinping continued on November 1^st, 2018.

Coi Rubber’s President, David Chao, has said that he too had already been considering offshoring manufacturing to other countries near China prior to the trade war talks. The passage of recent tariff laws only solidified Mr. Chao’s decision to relocate their China based factory to other competitive countries to escape unreasonable tariff costs and maintain the company’s global expansion trajectory. Coi Rubber will continue to operate their three factories in China but will make Vietnam their primary factory. Although the tariffs may impact many manufacturers initially, Mr. Chao sees this as an opportunity to invest in Coi Rubber’s future by building their 4^th factory in Vietnam, thereby allowing them to save costs in not only tariffs but in labor costs as well.

Trade War Effect on the Rubber Industry in Vietnam

Rubber in Vietnam has been a stable industry as they ranked 3^rd as a global exporter for rubber in 2017 (Source: Voice of Vietnam). Despite the country’s relatively small population of 96 million people, Vietnam was able to rake in $2.3 billion after exporting 1.4 million tons of natural rubber. Vietnam’s mark in the rubber industry is just beginning as the trade war between the United States and China continues creating new opportunities for Vietnam to expand their role in the industry. Trade war talks will affect the export rate of Vietnam with China, constituting 60% of Vietnam’s total import in rubber.

President Trump believed the new tariff laws would lead to more jobs in the U.S by forcing companies to move manufacturing to the U.S. instead of China. However, the plan has proven to be ineffective as many rubber manufacturers, including Coi Rubber, must look to relocate from China to countries such as Vietnam to stay competitive. By relocating to other countries, Coi Rubber is projected to reduce their production costs by 25%, as the tariff rate will increase to 25% by 2019. Coi Rubber will also benefit in labor costs, as the average monthly minimum wage in China is $350 compared to $170 for Vietnam according to Trading Economics.

Cost Savings in Rubber

By being able to save costs in labor and tariff bills, Coi Rubber can offer the same or better pricing in Vietnam compared to their China factories’s manufacturing costs. Coi Rubber will also continue to be able to maintain fast production lead time since Vietnam is a close neighbor of China. This allows Coi Rubber to buy and transport low priced materials to Vietnam from China without delay. Altogether, these advantages make Vietnam a lucrative location for Coi Rubber and other manufacturers to which to relocate rendering the Trump administration’s plan ultimately ineffective.

About Coi Rubber

Coi Rubber Products, Inc. is a custom manufacturer of molded rubber and plastic components with locations in US, China, and Mexico. Coi Rubber has over 28 years of experience in Engineering, Design, Compounding, Prototyping, and Production of molded rubber and plastics. We provide large scale production and engineering support to the Automotive, Industrial, Agriculture, Appliance, HVAC industries, and many more.

Coi Rubber Products is an IATF 16949:2016 certified and MBE manufacturing company based in the US. Quality and documentation is guaranteed with every order at Coi Rubber. Value-added services at Coi Rubber include FOB shipping to our Los Angeles headquarters and distribution center, US-based customer service and engineering support, and factory-direct prices from our American-owned and managed manufacturing facilities in China.

Learn more about offshore manufacturing: https://www.coirubber.com/sourcing-offshore-manufacturers/