Canadian retailers relocate production from China

Fearing the imposition of new tariffs by the United States on products from China, Canadian retailers with activities in this country are choosing to relocate them as a precaution.

This is the case of the Dynamite group, Aritzia, Lululemon and Canadian Tire, Canadian companies that sell their products in the United States.

Knowing that there will be a transition in the first quarter of the year, we have already taken steps to shift more production out of Chinaindicated Andrew Lutfypresident and CEO of the Dynamite group, during a recent conference with investors.

The Dynamite Group, a Montreal-based clothing company, has been expanding in the United States since 2007 and has 109 Garage stores and 5 Dynamite stores south of the border.

Against a backdrop of geopolitical tensions

The trend of companies moving production out of China is not new. Tensions between the United States and China have been escalating for years, and tariffs put in place under China’s first administration Donald Trump were maintained under his successor, Joe Biden.

This situation has prompted companies to develop offshoring plans, a trend that has accelerated recently.

The shoe maker Steve Madden has, for example, announced that it plans to reduce its products made in China by 40%, whereas its previous objective was 10%.

In the wake of trade restrictions between the United States and China, the Canadian government has imposed its own tariffs on Chinese electric vehicles, steel and aluminum. This measure was not to the taste of Beijing, which filed a complaint against Canada with the World Trade Organization (WTO).

The rise in geopolitical tensions then prompted Canadian companies to examine their commercial relations with China, as analyzed John Boscariollawyer specializing in commercial law.

The Canadian business community is seeing these signals and realizing that having a significant part of their supply chain located in China can imply vulnerabilities.

Forced labor and labor costs

China’s abandonment was also driven by concerns over forced labor after mounting evidence of human rights abuses against members of the Uyghur minority in China’s Xinjiang region, hub for the production of cotton and other products.

With the passage of the U.S. Uyghur Forced Labor Protection Act, companies now risk having some goods stopped at the border and having to prove they were not made with forced labor.

This is why they are suddenly taking more extreme measuresexplain Carlo Dadedirector of commerce at Canada West Foundationa Calgary-based think tank.

According to Bob Churchexecutive director of the Canadian Apparel Federation (FCV), other factors may also have played a role in this change, notably the increase in labor costs, linked to the economic development of China.

Greg Hicks, CEO of Canadian Tirefor his part, believes that Canada is in a less risky position than last year at the same time, regarding the repercussions of the trade escalation between the United States and China.

Aritzia opts for a systematic diversification

Aritzia, a Vancouver retailer that is growing rapidly in the United States, said this month that it was working to systematic diversification of its manufacturing since the time the company went public in 2016.

What I can say today is that the vast majority of our products are manufactured outside of China.

Lululemon, another Vancouver brand, also told investors it only had very limited exposure in China: We outsource approximately 3% of our products to China, which means our exposure to this country is relatively low.

The challenge of freeing ourselves from China

It can be difficult for companies to fully untangle their supply chain from China, given that country’s dominant position as a supplier.

Furthermore, as explained Carlo Dade of the Canada West Foundationmany Chinese manufacturers have invested in supply chains across Southeast Asia. This means that moving production to another country may not solve the problem.

Even if you try to escape China, you will only run into China.

As tensions between North America and China continue, Carlo Dade is waiting to see if Canada will provide any assistance to companies trying to leave that country.

The Japanese government has gone so far as to pay companies to transfer their production from China to Japan or Southeast Asia.

With information from Paula Duhatschek