As of late, every time we hear the words US and China in the same sentence, we know we are in for some bad news. The on-going trade war between the two major powers seem endless and appears to have gotten severely worse in the last few weeks. Major Chinese firms such as Huawei have been banned by the US, being entered into their “Entity List”.
In todays interconnected and globalised world, the effects of the trade war are felt throughout the world. Analysts have become pessimistic with regards to the future of the global market and economy. What might come as a surprise to some is that there are several nations that could stand to, and are already benefitting quite well from this conflict.
The reasons for this are fairly simple. Firstly, China has become less attractive for some manufacturers amid the rising tariffs of a US-China trade war. Secondly, despite the expected slump in global economic growth, developing countries are becoming a hotbed for production and manufacturing due to cheaper operating and labour costs; thus presenting themselves as an attractive alternative for companies to base themselves.
For example, The California company Pedego Electric Bikes was long reliant on China as a production centre. Now its bike assembly will be 100 per cent in Vietnam and Taiwan.
The Taiwanese electronics firm Wistron is also moving its China-based production to new locations, with much of it headed for a facility in the Philippines.
From machinery, electronics, fashion, you name it! Companies from all sorts of industries are considering or are already shifting production outside of China to avoid the ever expanding threat of increasing tariffs. Even if a bilateral trade deal is reached, experts say it would be unlikely to fully resolve US-China tensions, so this geographic rebalancing of global manufacturing could persist.
“Many companies were already looking into this, and the trade war is giving them the final push to make it happen”, says Jon Cowley, an expert in trade law with the Baker McKenzie law firm in Hong Kong.
Developing countries in Asia are seeing a surge in investment, a further indication that companies are shifting production. Chinese and US equity investment in new projects, known as “greenfield investment”, rose sharply in other developing Asian nations in 2018. According to the Asian Development Bank (ADB) US greenfield investments rose by 71 per cent in 2018 while China’s tripled.
Economists and trade experts speculate that this trend is expected to continue as long as China and the US continue to squabble over an agreement.
Already production of shoes, apparel, toys, and other “footloose” industries has been shifting from China to Vietnam and other countries, partly due to rising wages in China, says Mary Lovely, a professor of economics at Syracuse University.
Moving mid-level manufacturing in items such as computers out of China is harder because it is more knowledge-intensive. With a relatively young, literate, and numerate workforce, added Professor Lovely.
Overall, trade wars are economically detrimental, especially for the countries directly involved. Trade increases a country’s wealth, measured by GDP and also allows resources to move across borders to where they are used most efficiently. When barriers are imposed on these goods, then overall productivity and GDP will fall.
Both the U.S. and China are projected to face economic damage if current tariffs stay in place for the rest of 2019 and 2020, according to the ADB. The loss of GDP will eventually lead to a loss of jobs. The only ones fortunate enough to benefit from the trade war are the nations who are receiving the “refugee companies”, as they bring with them not just the means of production, but the job positions to be filled as well.
