(Yicai) May 12 -- Tool manufacturing in the United States will never return to the way it was in the past, mainly because of high labor costs, according to Chinese executives in the industry.   

“US labor costs are extremely high," Li Feng, senior vice president of hand and power tool maker GreatStar Industrial, told Yicai in a recent interview.

In 2017, Hangzhou-based GreatStar acquired US hand tool company Arrow Fastener, which has around 1,000 employees. But Arrow Fastener's average labor cost per worker is several times that of China and Vietnam.

A few years ago, Chervon Holdings mulled having production bases in the US, but "we learned from our factory in Germany that we need to be very cautious about manufacturing in high-cost regions," said Pan Longquan, chairman and chief executive at the power tool and outdoor power equipment manufacturer.

According to Chervon’s calculations, manufacturing in the US would increase the Nanjing-based  company’s production costs by at least half. Moreover, core components, such as electric power systems, electronic control systems, and motor systems, are totally absent in the US, Pan noted, adding that local lithium battery supply lines are mostly geared toward the auto industry, so cannot serve Chervon’s needs.

The US market for power tools and outdoor power equipment exceeded CNY170 billion (USD23.5 billion) in 2020, making it the largest in the world, according to data from Frost & Sullivan. Pan estimates that at least half of the tools sold in the US are made in China.

The US has imposed import tariffs on many industrial raw materials, further raising manufacturing costs. "The US has levied a 145 percent tariff, and the market cannot accept that," Pan said.

Tools made in China or Vietnam are sold in the US at tens of US dollars, while those made in the US are priced in the hundreds of US dollars, Li pointed out. “It's impossible for manufacturing to return to the US like this,” he noted.

Chinese electric toolmakers are collaborating with US distributors to build up inventories and expand production capacity in Vietnam to mitigate the uncertainties brought about by changes in US tariff policy.

In the fourth quarter of last year, Chervon's US partners began stockpiling and continued to do so in the first quarter of this year. The firm’s inventory in the US can now meet several months of sales.

Chervon had sales of CNY13 billion (USD7.2 billion) last year, with more than 70 percent of that coming from the US market.

Another measure Chervon has taken to cope with higher US tariffs is to increase shipments to the US from Vietnam. After establishing its first factory in the Southeast Asian country in 2020, the firm decided to build a second manufacturing base there last year. 

Meanwhile, GreatStar plans to expand its product range in Vietnam from hand tools to electric items, including nail guns and drills. US customers recently inspected the company's factory in Vietnam to ensure future production capacity expansion, Li noted.

The third phase of GreatStar's factory in Vietnam is expected to be completed by the end of this month, and the fourth phase is scheduled to be finished by next May.

GreatStar's US sales generated about 40 percent of the company's revenue. The company expects its factories in Vietnam or Thailand to fully meet US market demand, while its Chinese plant will focus on exports to Europe, countries along the Belt and Road Initiative, and South America.

Editor: Futura Costaglione