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NEW YORK: Faced with tariff “uncertainty”, Sharpie pen maker Newell Brands is moving production of kitchen tools out of China and shifting production of its writing business to Tennessee. US presidential electionNewell Chief Executive Officer Chris Peterson said in an interview with Reuters.
Peterson noted in the interview that the supply chain changes were not a response to the Republican presidential candidate. Donald Trump campaigned on a promise to raise tariffs further If he wins, Chinese-made goods and many other products will be sanctioned.
“Trump is talking about putting high tariffs on Chinese imports,” Peterson said, adding that Democrats are discussing keeping in place tariffs that were originally put in place during Trump’s first term as U.S. president and expanded further this year. “There’s a lot of uncertainty. We just want to reduce our exposure, whatever the outcome.”
He added: “Mobilising supply chains in real time is very difficult.”
He said Newell is automating its U.S. manufacturing to take advantage of higher wages in the United States, adding that moving production to the U.S. also saves time and fluctuating freight costs.
“If you automate the factory enough, the economics are good,” he said. “That’s our sweet spot.”
U.S. companies importing goods from Asia have faced a series of crises over the past few years, including tariffs, delays and cost surges during the pandemic and, more recently, Houthi rebel attacks on container ships passing through the Suez Canal.
Peterson, a former Procter & Gamble executive who became Newell CEO last year, is a member of the Business Roundtable, an influential group of CEOs that met with the chiefs of staff to Presidents Trump and Biden in June. A Newell spokesman said Peterson was present at the meeting.
He added that as a consumer products maker whose pens, baby car seats and food storage containers are in 95% of American households, “we don’t think we should advocate for a political ideology.”
Peterson said Newell already makes most of its writing business, including Paper Mate pens, Expo markers and Elmer’s Glue, at a plant in Maryville, Tenn., a small city south of Knoxville. He said the company earlier this year moved more production of its writing division to Tennessee from China and South Korea because the plant could be expanded.
Peterson said the company also plans to move its kitchen appliance manufacturing from China to Vietnam, Thailand, Indonesia and other places. He also added that Newell Group is not going to withdraw from China, but to “reduce its dependence on China.”
Newell spent $16 billion in 2016 to buy Jarden Corp, maker of Crockpots, Oster blenders and Mr Coffee machines, in an effort to negotiate better prices with Walmart, its biggest customer. But it has struggled as inflationary pressures have led consumers to cut spending on all but essentials.
Newell was kicked out of the S&P 500 last year after a sharp drop in market share. So far this year, Newell shares are down 6%, while the S&P is up nearly 10%.
The Atlanta-based company this year accelerated earlier efforts to reduce its reliance on Chinese manufacturing, Peterson said in a July 26 call with investors.
Peterson said Newell expects that by the end of next year, less than 10% of its U.S. business will be tied to Chinese manufacturing, compared with about 15% now. Five years ago, it was about 35%, he said.
Outside of China, Newell has had trouble finding factories to manufacture finished products close to the factories that make components, Peterson said.
“The ecosystem in China is very complete, including finished product assembly and components,” he said. “Raw material production is also in China, so it’s difficult to move given that dynamic.”
The company is currently implementing a productivity program, including manufacturing automation, aimed at turning around the business and improving profit margins.
“We have jobs that are being replaced by people managing robots and managing automation,” he said, adding that the change will lead companies to pay higher wages.
He said the average wage for employees at Newell’s Maryville, Tennessee, plant is currently more than $20 an hour.
“My goal is to substantially increase the average wage in our manufacturing plants by transforming the workforce from manual labor to a skilled workforce,” he said. “If we can do this well, we can bring more manufacturing back to the United States.”
The transfer of additional writing operations back to the U.S. earlier this year added about 70 jobs to the Maryville facility, a spokesman said.
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