China Plus None? Broad Tariffs Leave Fewer Places to Run for Georgia Firms Diversifying Production

Perhaps no other Georgia company saw the writing on the wall earlier than East West Manufacturing. 

The Atlanta-based contract manufacturer got its start in China in the years after its World Trade Organization accession, then quickly recognized, thanks to business trends rather than geopolitical turbulence, that the company’s next big play would be to help customers move beyond the world’s factory floor.

This “China plus one” strategy held that supply chains were too entrenched to leave China outright, but rising labor and logistics costs and an appreciating currency would push companies to diversify further abroad, often in Asia. 

After building up a sourcing office in Shenzhen, from which it worked with hundreds of Chinese suppliers, the company set up a joint venture making air-conditioner motors in Changzhou, just an hour by high-speed train northwest of Shanghai in Jiangsu province’s manufacturing hinterland. 

Then came the next big leap: a wholly owned factory in Vietnam that began production on simple rubber and plastic parts.

By 2011, CEO Scott Ellyson told Global Atlanta that the 60,000-square-foot building was already tapped out, and he’d need two new factory buildings to make motors, printed circuit boards, medical devices and other complex goods as additional suppliers found their way into Vietnam — and as customers saw the level of quality they were getting for the lower price.

Fast forward to today, and East West has taken its name to its logical conclusion, first moving into India, then gradually embarking on a private-equity fueled expansion into the Western Hemisphere, opening plants in Mexico, Costa Rica, Canada and, finally, a few locations in the U.S. 

The moves looked prescient as the global economy became more fragmented, but the reality of expanding U.S. manufacturing in an era of China-dominated supply chains has been mixed, Mr. Ellyson told Global Atlanta via email. 

With the latest tit-for-tat trade war driving U.S. tariffs on Chinese imports to 145 percent, Mr. Ellyson doesn’t see increased American production as the outcome, at least in the short run.

Conversely, it is increasing costs and stalling investments here at home, he said.

“Unfortunately, in our space there are significant tariffs on imported materials into the U.S., which makes our U.S. operations less competitive to many other countries,” Mr. Ellyson said, referring in part to steel and aluminum parts President Trump hit with a 25 percent tariff in March.

“This runs counter to what the tariffs are intending to accomplish, especially when some components (such as passive electronics) are only available from China,” Mr. Ellyson added.

Some companies facing this predicament may decamp to lower-tariff countries, but those refuges could be harder to access if the reciprocal tariffs announced by Mr. Trump April 3 are actually installed after a hastily arranged 90-day reprieve expires in July.

The Southeast Asian countries to which American (and Chinese) producers fled during Mr. Trump’s first term have become victims of their own success in selling into the U.S. market: Mr. Trump hit Vietnam, Cambodia and Indonesia with 46 percent, 49 percent and 32 percent tariffs, respectively, using a widely panned formula that economists said focused more on remedying trade deficits than overcoming barriers. 

While those higher tariffs were delayed for 90 days, a blanket 10 percent levy remains in effect.

“It would have a large impact on our Vietnam facility and many of our U.S. customers with their own manufacturing facilities if the 46 percent reciprocal tariffs were to go into effect,” said Greg Richard-Yu, senior director of administrative operations at East West. “It is challenging for  supply chains to respond dynamically to such a drastic and sharp increase in landed pricing.”

Other Georgia firms, especially makers of apparel, have accelerated their moves out of China, often building on efforts begun during the first Trump trade war starting in 2017.  

Executives at Atlanta-based Oxford Industries Inc., maker of the Lilly Pulitzer, Tommy Bahama and Johnny Was clothing brands, among others, projected during a March 27 full-year earnings call that the China tariffs (which stood at 20 percent in two tranches of 10 percent at the time), would dent gross margins by $9 to $10 million in fiscal 2025. 

“Our mitigation steps have and will continue to include receipt of inventory ahead of the effective date of new tariffs, sourcing shifts to countries with lower duty and tariff rates, sharing of tariffs with our vendors, merchandising shifts to more favorable duty products, and select price increases,” said Chief Financial Officer Scott Grassmeyer on the call. 

The company said it would lean on its mitigation “track record” and would “materially mitigate the impact of known and implemented tariffs” by the spring of 2026. In its last corporate social responsibility report, issued in 2021, Oxford said it had 230 suppliers, with 38 percent of its inventory sourced from China. Some 23 percent of production had moved to Vietnam and 11 percent to Peru.

Significantly reduced demand could harm Oxford’s distribution center in Toombs County, Ga., where it has operated for 80 years. A $130 million investment in 2024 creating 60 jobs, a record for the county, was attributed in part to the south Georgia community’s proximity to the state’s globally connected sea ports. 

Newell Brands Inc. started more than a year ago speeding up efforts to reduce its exposure to China, which now accounts for just 15 percent of its sourcing costs, with much of that amount shielded by exemptions for Section 301 tariffs on baby products.

At the start of the last trade war, Newell made about a third of its products in China.

By “in-sourcing” to its own factories in places like Mexico and approaching only outside suppliers with plans to introduce ex-China manufacturing capacity, the maker of Sharpie markets, Coleman camping gear and Graco baby products expects to drop its China cost exposure to below 10 percent by the end of this year.

Newell is also staying “agile,” seeing an opportunity in that rising tariffs could raise costs for its more China-concentrated competitors, forcing buyers to look for alternatives, President and CEO Chris Peterson said in an earnings call:

“Depending on what happens with China tariffs, we may need to scale up production quickly to add additional capacity if our competitors get priced out of the market in some of our businesses. At the same time, if there are businesses that we get hit with tariffs in China, we’ll have to react to those as well. But I think our starting point is much more balanced today — certainly than where we were three or four years ago.”

Much like East West, kids’ clothing maker Carter’s Inc., based in Buckhead with a large distribution center in Braselton, started moving out of China many years ago due to rising costs. 

A China sourcing burden that stood at 55 percent when Chief Financial Officer Richard Westenberger started at the company in the late 2000s had dropped down to 5 percent last year, with Vietnam, Bangladesh, Cambodia and other low-cost countries picking up the slack in cut-and-sew operations.

China, however, has been harder to shake when it comes to the fabric used in Carter’s garments, which is still mostly processed there, Mr. Westenberger said during the February earnings call:

“We have a program that is intended to diversify and reduce our dependence on China fabric as well. We continue to move production around as we see opportunities. We have a great network of strategic vendor partnerships in those other countries like Bangladesh, like Vietnam, like Cambodia. We’re continuing to build out those relationships. India has emerged as a significant source for us. I think you’ll see more production migrating to India over time.”

Other companies, meanwhile, have had a great experience in China, growing with the country over the last few decades.

Makeup brush maker Anisa International opened a new factory in Tianjin, China, during the pandemic, where it had operated since 2003.

While executives studied other options including moving to lower-cost jurisdictions or the more expensive option of the United States, China had two trump cards: the workforce for the product, which requires a level of artisanship, and the raw material supply chain.

Plus, says founder and CEO Anisa Telwar Kaicker, China had always been supportive, building infrastructure to keep up with companies’ needs and improving its environmental stewardship along the way.

The beauty industry is banding together to ride out the trade war, and Ms. Kaicker has been educating some less-savvy colleagues as to why she can’t just pick up and move.

“The energy it will take to cannibalize resources, it’s not worth it when this can go away at any minute, so we’re just waiting it out,” she said, seeing this moment as almost a war-time aberration rather than an enduring trend.

Plus, the grass isn’t always greener: Ms. Kaicker has seen competitors move to Thailand or Indonesia and face other unforeseen problems, she said.

Anisa International avoids imports, as its customers pick up their orders at the China factory. It is only hit with the elevated tariffs in the U.S. when importing its house brand, a small proportion of overall sales.

But Ms. Kaicker has been helping people all along the supply chain understand the implications and costs of trade turbulence.

“It is challenging for  supply chains to respond dynamically to such a drastic and sharp increase in landed pricing.”

Greg Richard-Yu, senior director of administrative operations at East West MANUFACTURING

“We’re just trying to be there for our customers,” she added.

Still, if the Trump tariff plan, as some of his apologists say, was to force American companies to reconsider their exposure to China, Mr. Ellyson of East West says it has at least had that effect.

“It has only put more pressure on shifting manufacturing out of China. This is a priority now for most of our customers that have a presence there.”

Perhaps on the positive side of the ledger for Georgia, this reorientation has Asian companies thinking about investing in the United States, said Pat Wilson, commissioner at the Georgia Department of Economic Development, who recently returned from a trip to court companies in Taiwan and Singapore.

“Companies based in Southeast Asia are included in this global shift that presents potential opportunities for Georgia as we continue to embrace our role as a global gateway,” Mr. Wilson said. “Shifts of this scale take time, and companies are still in the midst of the exploration and information-gathering process.”

Read/watch more on Anisa and East West: How Two Georgia Companies Are Defying the U.S.-China ‘Decoupling’ Narrative