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A lot of American companies that make or buy products from China are starting to rethink doing that as a new round of tariffs takes effect this weekend. Import taxes are making Chinese goods more expensive in the United States. But finding alternative suppliers isn't that cheap either. NPR's Scott Horsley has the story.
SCOTT HORSLEY, BYLINE: Many American companies are facing rising costs because of the tariffs. But Robert D'Loren doesn't have to worry. D'Loren's CEO of the Xcel Brands company, which sells clothing under the Isaac Mizrahi and Halston labels, among others. He began moving out of China some time ago not because of tariffs but in order to find faster, more flexible suppliers who could jump on fashion trends and turn out clothes in just six weeks. D'Loren says Xcel now manufacturers in a variety of countries, including Indonesia, India and Sri Lanka and is exploring production in Central and South America.
ROBERT D'LOREN: You never want to have all of your eggs in one basket in terms of supply. China was easy. In retrospect, probably, if you had 90% of your production in China, that wasn't good risk management planning.
HORSLEY: D'Loren has gone from making 70% of his clothes in China to less than 20%. But it wasn't easy. He spent two years flying around the world, trying to line up factories.
D'LOREN: It took us five deliveries to get it right. Everything that could go wrong did go wrong.
HORSLEY: Clothes from the new factories didn't fit right at first or the fabric wasn't what he expected. Many companies are now going through a similar process of trial and error as they look for alternatives to Chinese factories in hopes of avoiding the president's tariffs.
GERRY MATTIOS: The truth is that the trade war is a little bit of a wakeup call for many companies.
HORSLEY: Gerry Mattios is a vice president with Bain & Company consultants based in Singapore. He says rising labor costs in China were already causing some companies to look elsewhere for suppliers, and the Trump tariffs have accelerated that. But other countries will need a lot of investment to match the expert manufacturing base and the robust shipping network that China's built up over the last two decades.
A survey by the American Chamber of Commerce in China, which represents U.S. business there, says most companies that do relocate look to Southeast Asia. Vietnam's exports to the U.S. jumped 33% in the first six months of this year. Mexico is another popular destination. Roberto Durazo works for a company there called IVEMSA that helps manufacturers set up shop in Mexico. Durazo held three conference calls with potential clients in a single day this week. But for now, he says most are keeping their options open.
ROBERTO DURAZO: Not many of them are pulling the trigger. My feeling is that many of them are gathering information, and if the trade war continues for a long time, just making the decision of coming into Mexico.
HORSLEY: Mexico offers the advantage of much shorter delivery time to the U.S., but it has risks of its own. Just three months ago, President Trump was threatening tariffs on goods made there. Trump has urged companies worried about tariffs to move production back to the United States, but only about 6% of the American companies operating in China are considering that. Harry Moser, who runs the Reshoring Initiative, estimates 25% would find manufacturing in the U.S. competitive if they took tariffs, transportation and all other costs into account.
HARRY MOSER: Probably, they made the right decision going to China when their wages were so low. Probably, they should have reevaluated it five years ago. But now that they feel they have to bring a lot of work out of China, now is the perfect time to reevaluate the U.S. as an alternative.
HORSLEY: But some companies are staying put. Louisiana-based Crown Crafts makes baby blankets and other products in China. CEO Randall Chestnut told investors this summer he looked at moving production to half a dozen different countries but ultimately decided it was cheaper to stay in China and pay the tariffs.
RANDALL CHESTNUT: So we think that we're going to have to bite the bullet and, you know, pass it on.
HORSLEY: According to the American Chamber, 60% of the U.S. companies now operating in China have no plans to relocate.
Scott Horsley, NPR News, Washington.
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