US and China are pressuring electronics manufacturers to pick sides

  • Taiwanese electronics manufacturer Foxconn announced it has shifted production away from China, and will continue doing so.
  • And this shift comes in response to escalating tensions between the US and China.

Taiwanese electronics manufacturer Foxconn announced that 30% of its production capacity now resides outside of China, up from 25% in June 2019, per Nikkei Asian Review.

FILE PHOTO: Visitors are seen at a Foxconn booth at the World Intelligence Congress in Tianjin, China May 19, 2018. REUTERS/Stringer/File Photo

FILE PHOTO: Visitors are seen at a Foxconn booth at the World Intelligence Congress in Tianjin


Foxconn — the world’s largest contract-based electronics manufacturer and Apple’s foremost supplier — plans to continue shifting production capacity away from China, to instead invest in India, the Americas (where the company has invested in facilities in the US, Mexico, and Brazil), and Southeast Asia. The end goal is to have two supply chains, according to Foxconn chairman Young Lui, serving the interests of both China and the US. China’s “days as the world’s factory are gone,” Liu said. 

Foxconn will have a difficult time serving the divergent economic interests of the US and China, as both countries are taking steps to force companies to pick a side: 

  • The US State Department last week outlined the Clean Networks initiative, which aims to force Chinese companies out of major tech markets. The five-pronged plan covers telecoms, cloud computing, app stores, undersea cable infrastructure, and smartphones. The State Department aims to ban Chinese companies from competing in markets throughout “more than 30 countries across the globe” that it chose not to specify, though it said the initiative was based on discussions with representatives from the EU and North Atlantic Treaty Organization (NATO). 
  • In response to US pressure, China is reportedly more aggressively pursuing a “domestic circulation” strategy, which will look to fuel growth by propping up domestic alternatives to foreign companies. In this case, “foreign companies” would likely include companies like Foxconn, which are headquartered outside of China, even though they manufacture the bulk of their products there. Since such companies are outside of China’s jurisdiction, they are subject to geopolitical pressures that make them unreliable economic partners. For instance, Huawei is no longer able to source chips from Taiwan-based chipmaker TSMC, even though TSMC continues to operate a manufacturing facility in Shanghai. The Communist party is expected to flush out the details of the five-year “domestic circulation” plan in October, which would go into effect in 2021, per The Wall Street Journal. 

With China losing its place as “the world’s factory,” electronics manufacturers will increasingly need to build facilities within the markets in which they intend to sell goods. A cornerstone of China’s economic development was requiring foreign companies to produce goods in China if they wanted to sell products to the substantial domestic market. Given the success of this strategy, developing nations with large consumer bases such as India and Indonesia have adopted similar policies, using tariffs and tax breaks to encourage manufacturers to set up shop locally.

As with Foxconn, the success of global electronics manufacturers — particularly those competing in price-sensitive consumer segments — will be predicated on their ability to adopt manufacturing strategies that serve the national interests of the markets they intend to serve. 

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