Evan Niu, CFA

The Motley Fool

Wearables specialist Fitbit has been able to avoid damage from the Trump administration's trade war with China. The company, which has manufactured its products in China, has not been directly impacted by tariffs, although the tensions affect the global macro outlook.

The company announced a plan to shift manufacturing out of China in an effort to diversify its supply chain outside 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, but many consumer electronics makers have simply moved manufacturing operations to other regions in Southeast Asia, often nearby countries such as Vietnam or Malaysia, to maintain close proximity to other parts of the supply chain while enjoying relatively low labor costs compared with the USA.

Fitbit did not provide additional details on what the move would cost but said it will discuss the financial implications during its third-quarter earnings call, which has not been scheduled.

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Latest round of tariffs 'likely' to affect Fitbit

President Donald Trump's trade war has raged for nearly two years, but the tariffs have not applied to the products Fitbit imports from China. Fitbit discussed 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, between the countries as well as between domestic importers and the U.S. government, evolve rapidly. Instead of trying to cope with that uncertainty, Fitbit decided it's simpler to move shop.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Fitbit. The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

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