"We have also done a lot of calculations. If it is made in the United States, the cost will increase by at least 50%. The US market cannot be digested and no one will pay the bill." Pan Longquan, chairman and CEO of Quanfeng Holdings (02285.HK), told First Financial News recently.

Quanfeng Holdings is a company that produces power tools and outdoor power equipment, such as electric drills, angle grinders and lawn mowers. Tool products are all-encompassing, China is the largest manufacturing base, and the United States is the largest consumer market. According to Sullivan data, the U.S. power tools and outdoor power equipment market size exceeded 170 billion yuan in 2020. Before and after the United States imposed tariffs, Chinese companies and their American distributors joined forces to actively prepare stocks on the one hand and expand the production capacity of Vietnamese factories. Although one goal of U.S. tariff policy is to achieve a return to manufacturing, it is almost impossible to do in tool manufacturing.

In fact, the newly built U.S. factory Stanley Berkeley (SWK.NYSE), the largest tool manufacturer in the United States, has also been closed in 2023. Quanfeng Holdings discussed the feasibility of production in the United States a few years ago, but the valuable experience Pan Longquan has gained for more than ten years of operating a German factory is: "We will be very cautious when doing manufacturing in high-cost areas."

Chinese and American companies join forces to activate Vietnam's production capacity

Quanfeng Holdings' sales channels in the United States include both the large supermarkets, Lowe's, the comprehensive retailer, Walmart, and the online sales platform Amazon.

After the United States initially imposed a 20% tariff, Quanfeng Holdings had already negotiated with its customers about how to share the tariffs, but after the tariffs were suddenly upgraded, it was meaningless to make further negotiations.

"The United States imposes 145% tariffs, and the market cannot accept them. So in the past month, our exports from China from the United States have been suspended, and we have increased production in Vietnam." Pan Longquan said. Quanfeng Holdings' sales volume in 2024 is about 13 billion yuan, accounting for more than 70% of the US market.

The United States is the world's largest tool market. Pan Longquan estimated that at least half of the tool products sold in the US market are made in China. If electric tools are specifically used, the proportion of manufacturing in China will be larger. "More than 90% of power tools come from outside the United States, and more than 20% of them in Mexico."

Quanfeng Holdings and U.S. partners' vigilance against tariffs began when Trump ran for election. In the fourth quarter of 2024, customer and Quanfeng Holdings started stocking, and further increased stocking efforts in the first quarter of this year.

"The customer and us have both prepared inventory." Pan Longquan said that Quanfeng Holdings' U.S. inventory can meet the sales needs of several months. In addition, the most important emergency response method is to increase Vietnam's shipments.

Vietnamese tool products have also been subject to a 10% tariff, which is shared between Chinese manufacturers, American importers and American consumers.

Quanfeng Holdings has prepared Vietnam's production capacity since Trump's first term. The factory is located in Binhill Province in southern Vietnam and is officially put into production in 2020. In 2024, Quanfeng Holdings decided to build a second manufacturing base in Vietnam.

Superstar Technology (002444.SZ) also has a factory in Vietnam.

The first factory in Vietnam was built in October 2018 and is located in Hai Phong, a harbor city in northern Vietnam. Against the backdrop of trade frictions at that time, Superstar Technology and the US partners wanted to find ways to avoid the impact of tariffs, so they moved some of the production capacity to Vietnam, and now they produced manual tools such as hammers and wrenches.

Recently, Li Feng, senior vice president of Superstar Technology, accompanied large American retail customers to visit factories in Vietnam. Against the backdrop of new tariffs, Superstar Technology will expand the categories produced in Vietnam from manual tools to power tools (such as live nail guns, electric drills, etc.).

"These large customers are here to inspect the factory this time to ensure our future expansion capabilities." Li Feng told the First Financial reporter that these American customers stayed in the Vietnam factory for three days and inspected key production links. Both sides ensured that the newly added categories meet export standards.

The third phase of Superstar Technology's Vietnam factory will be completed by the end of May. The fourth phase of renovation will also be completed in May next year. Superstar Technology's sales in the United States account for about 40% of its total revenue. In the future, factories in Vietnam or Thailand can fully cover the needs of the US market. Chinese factories are exported to Europe, Belt and Road countries, South America and other places.

Quanfeng Holdings and Superstar Technology’s adjustment to the supply chain is not only in line with its own interests, but also at the request of its US partners.

American retail companies such as Home Depot, Target, Walmart, etc. cannot bear the tariff costs and are seeking solutions with the US official. At the end of April, the CEOs of the three companies met with Trump at the White House. Several companies issued similar statements after the meeting, which Walmart called "productive talks."

"The United States also knows that the tax is too high and it is no longer reasonable. Moreover, it is the American consumers who pay the bill and it will seriously deal with small and medium-sized American enterprises." Li Feng said.

Returning to the United States is a dream

Juxing Technology and Quanfeng Holdings have manufacturing bases in developed countries.

In 2017, Superstar Technology acquired the American hand tool company Arrow Fasterner LLC for RMB 860 million. Superstar Technology is interested in its century-old brand ARROW, which is manual, pneumatic, electric nail guns and consumables, and its distribution system in the United States, rather than its factories.

"The labor costs in the United States are very high and cannot be done at all." Li Feng believes that it is not realistic to expand production capacity in the United States and add factories. Currently, the factory in the United States has about 1,000 employees, and the average labor cost is several times that of China and Vietnam. "I think the United States will never be comparable to the labor costs of China and Vietnam."

In 2013, Quanfeng Holdings completed the acquisition of Germany's Flex Power Tools Company. This is a 90-year-old enterprise that produces electric angle grinders and other products. Through this merger and acquisition, Quanfeng Holdings has acquired Flex brand, Stanheim factory and German sales channels.

Since the completion of Quanfeng Holdings’ acquisition, global sales of the Flex brand have increased by nearly three times, but the majority of the increase comes from production in China rather than manufacturing in Germany.

"The cost of products made in Germany is naturally so expensive, but in the era of globalization, these costs have long been Chinese, and it is difficult for German manufacturing to support them." Pan Longquan said that Quanfeng Holdings has decided to close its German factory. "After more than ten years, we have been determined to protect this factory, but still feel that it has no strategic significance."

After operating a German factory for more than ten years, Pan Longquan has gained experience: "We will be very cautious when doing manufacturing in high-cost areas."

Quanfeng Holdings discussed internally a few years ago the feasibility of setting up a factory in the United States.

"We have also done a lot of calculations. Let's just say that the cost of production in the United States has increased by at least 50%. Now the US market cannot be digested, no one can afford it, no one can pay."

In addition to the high labor costs in the United States, the lack of the industrial chain of tool manufacturing is a core issue. Pan Longquan analyzed that some local lithium battery supply lines are mainly focused on the automobile industry and cannot be used by Quanfeng Holdings. "The power supply system, electronic control system, and motor system are completely missing."

Stanley Baide may have similar views with Quanfeng Holdings.

During Trump's first term and the manufacturing industry returned to the trend of public opinion in the United States, Stanley Bedd spent $90 million to build a new factory in Texas, USA, and equipped with automation equipment to produce wrenches, pliers and other mechanical tools. However, due to factors such as the epidemic, supply chain and technology that did not meet expectations, Stanley Bedd closed the factory in 2023.

"I guess their decision-making ideas are very similar to ours. He will not easily build a large factory in the United States now, he will be very cautious," said Pan Longquan.

The United States currently imposes tariffs on many industrial raw materials, which has instead increased its manufacturing costs. For example, the tariffs imposed by the United States on imported steel affect the export business of the EU, China and Japan, and the increased costs are also weighing on American tool manufacturers.

"After the tariffs were increased, the US Steel Association collectively increased its price by 30%. Then the competitiveness of the US manufacturing industry was also weakened. For normal tool manufacturing, the United States will never return to the past." Li Feng said. The same tools are made in China or Vietnam, each piece costs a few dollars to dozens of dollars. Unless the United States produces and sells tools with a unit price of several hundred dollars, "how can it be possible to go back to the United States."

Globalization keeps pace

Quanfeng Holdings' exports to the United States were mainly shipped from China, and Vietnam's exports have increased a lot since April. Pan Longquan revealed that the company plans to maximize Vietnam's production capacity in the next few years.

Pan Longquan said that even in the extreme assumption scenario of decoupling, trying every means to gain more share in the US market is a goal that cannot be given up.

The path of globalization and branding of Chinese companies is far ahead of the Sino-US trade war. After the trade frictions, Chinese companies cannot stop the pace of globalization.

"Tariffs will have an impact on everyone in the short term." Li Feng said that in the long run, the internationalization of Chinese companies is like climbing stairs, climbing to a certain level for a rest. "I think we can settle down and lay a solid foundation and strengthen our foundation. Let's continue to move forward."

American, German and Japanese companies such as Stanley, Bosch, and Makita are the reference systems for the development of Chinese enterprises. Many Chinese companies such as Superstar Technology have also produced OEM for these global brands.

Chinese companies such as Superstar Technology and Quanfeng Holdings have been growing, and have opened up markets in the United States and Europe through acquisitions of brands and self-built brands, and compete with companies such as Stanley Berth.

"For example, our Arrow brand. In the past, many of the nail gun markets were Stanley Baide's DeWalt brands, but now you can't see them." Li Feng said that the market share of the Crafsman vacuum cleaner series sold by Stanley Baide in the United States is gradually being taken away by Shop-Vac of Superstar Technology (a US brand acquired by Superstar Technology in 2020). “We are a variety of vertical brands slowly replacing them. Our share is getting bigger and smaller.”

Quanfeng Holdings' globalization has also undergone several mergers and acquisitions. In 2016, Bosch's power tool brand SKIL was sold to Quanfeng Holdings. Quanfeng Holdings' global sales revenue has quadrupled over the past decade to US$1.77 billion in 2024. Stanley Baide's sales revenue in 2024 is US$15.3 billion, currently about eight times that of Quanfeng Holdings.

"If I can maintain my current growth rate, maybe in another ten years, the gap between me and him will go from seven or eight times to only two or three times." Pan Longquan said, "Their market share is constantly being eroded by Chinese companies, which is a basic phenomenon."

The global sales of Stanley Bait, Bosch, Makita and other companies are still much higher than those of Chinese companies. In terms of branding and high-end, Chinese companies have made breakthroughs, but there is a big gap with Stanley Baide, Bosch and others. Moreover, except for leading Chinese companies such as Quanfeng Holdings and Superstar Technology, most of China's tool companies still do OEM or mid- and low-end products.

When finishing the interview with First Financial News, Pan Longquan finally said: "Chinese companies still have a long way to go in the global market."