Thus far, wearables specialist Fitbit (NYSE:FIT) has been able to avoid damage from the Trump administration's ongoing trade war with China. The company, which has historically manufactured its products in China, has not been directly impacted by tariffs yet, although the tensions have been affecting the global macro outlook.
Fitbit is now moving its manufacturing operations out of China in order to avoid tariffs.
Where will Fitbit go?
The company announced yesterday that it has started to undertake a plan to shift manufacturing out of China in an effort to diversify its supply chain outside of the Middle Kingdom. The initiative will include manufacturing for "effectively all" of Fitbit's fitness trackers and smartwatches, allowing the gadgets to avoid the additional taxes starting in January 2020.
"In 2018, in response to the ongoing threat of tariffs, we began exploring potential alternatives to China," CFO Ron Kisling said in a statement. "As a result of these explorations, we have made changes to our supply chain and manufacturing operations and have additional changes underway."
The tech company did not specify where it was shifting production to, but many consumer electronics makers have simply been moving manufacturing operations to other regions in Southeast Asia, often nearby countries such as Vietnam or Malaysia, in order to maintain close proximity to other parts of the supply chain while still enjoying relatively low labor costs compared to the U.S.
Fitbit also did not provide additional details around what the move would cost, but said it will discuss the financial implications during its third-quarter earnings call, which has not yet been scheduled.
Latest round of tariffs "likely" to affect Fitbit
President Trump's trade war has been raging for nearly two years, but the tariffs have not applied to the products that Fitbit imports from China so far. Fitbit discusses the tariff risk in regulatory filings:
In 2018, the United States imposed additional duties, ranging from 10% to 25%, on a variety of goods imported from China. While these tariffs did not affect our products, in May 2019, the United States proposed an additional tariff of up to 25% on essentially all remaining Chinese-origin imports, which likely would cover our products. Imposition of the latest proposed tariffs was suspended after a June 2019 meeting between U.S. and Chinese leaders. However, on August 1, 2019, the Trump Administration announced that it currently plans to go forward with additional tariffs of 10% on the products subject to the May proposal, effective September 1, 2019.
Trade negotiations, both between the countries as well as between domestic importers and the U.S. government, evolve rapidly. The Trump administration often sends mixed signals and changes its mind regarding which products may be granted exclusions. Instead of trying to cope with that uncertainty, Fitbit has decided it's simpler to just move shop.