Because of this blog, our China lawyers get a fairly steady stream of China law questions from readers, mostly via emails but occasionally via blog comments or phone calls as well. If we were to conduct research on all the questions we get asked and then comprehensively answer them, we would become overwhelmed. So what we usually do is provide a quick general answer and, when it is easy to do so, a link or two to a blog post that provides some additional guidance. We figure we might as well post some of these on here as well. On Fridays, like today.
We have of late been writing often about how so many of our clients are looking to move their manufacturing out of China and to places like Vietnam, Indonesia, Cambodia, the Philipines, Pakistan, Thailand and India. These posts are getting us more than the usual emails and way more angry emails than perhaps any topic ever on here. We get emails from people angry at us for criticizing China and we get emails angry at us for “continuing to act as though doing business with China is still viable for decent people.” We get it, but really all we are doing is reporting on what we are seeing.
My favorite emails though are the ones that essentially ask us how far we see this movement out of China going and how we see the US-China trade war ending.
My answers to both of these questions have so far remained pretty much the same and they are as follows:
I see a lot of foreign companies leaving China now and I see that exodus as continuing. It would hardly be an exaggeration to say that on at least one level, nearly all of our clients would — at least in theory — like to cease having their products made in China. Part of this is due to the hassles and the hard times they have gone through in China and part of this is due to the grass always being greener on the other side. But to a large extent, these (hurt) feelings are mostly irrelevant. What’s relevant is whether these companies can do their manufacturing in a country other than China and whether their company would be better off doing so. I think that in large part the answer to the second question will more often be yes than no but the answer to the first and more important part will more often be no than yes. Put simply, most of the companies currently having their products made in China have no choice. No country right now comes close to matching China for its combination of manufacturing sophistication and low cost and until this changes, the overwhelming bulk of companies having their products made in China will continue to do so.
I do not see an end to the US-China trade war and that is why I call it the new normal. I think that the US will not back down unless and until China truly opens up its economy and I do not see that happening. Instead I see the tariffs sticking and maybe even increasing. President Trump has said that trade wars are easy to win and it would seem he truly believes this. He believes he can only win this trade war with China because China will either back down or Western (especially US companies) will move their manufacturing out of China due to its increased costs. But see How to Lower your Product Costs, Part 1: This is China, for how China is lowering costs and for how you as a product buyer can take advantage of this. JP Morgan today forecasts that tariffs on all US-China trade and I see essentially the pretty much the same thing. See JPMorgan is now forecasting tariffs on all trade between China and the US — and it could cause havoc for Chinese stocks.
If you are going to up and leave China for another country, you will need the very same protections in whatever country you go as you need for China, but specifically tailored for whichever country to which you are going. This may include the following:
- An NNN Agreements before you reveal your product specifications or design or customers or any other trade secret.
- A Mold/Tooling Ownership Agreement if you will be bringing your molds or tooling from China to the new country or if you will be paying (either directly or indirectly) for new molds or tooling in the new country.
- Product Development Agreements if you will be working with your new manufacturer to modify an existing product or create a new one.
- Manufacturing Agreements with whomever new who will be making your product. Go here, here, here, and here for what that entails
- You will need to register your trademark to protect your brand name and your company name and your logo in whatever new country you will be going. This will likely be the most important thing you do.
- A design patent or a utility patent
- A copyright. Usually not needed, but when it is needed, it’s very important.
What are you seeing out there?
Any questions for next week?