Winners from US-China trade war

As the stakes of the US-China trade war become tougher for both countries, there are developments that inevitably impact other countries.

These take place because a trade war affects producers and traders directly. To protect themselves from adverse developments, they make adjustments in their behavior.

Some producers look to safer production havens. Traders try to avoid the added costs of tariffs on imports. Companies make adjustments so that their costs and profits could be made more predictable and less vulnerable to the uncertainties and risks brought on by the war.

Shifting production base out of China. The more agile of companies (be they producers or traders) do make moves to protect their interests.

Such moves benefit countries and competitive economies that have good potential as alternative production bases.

An article in the Wall Street Journal yesterday entitled, “Manufacturers move supply chains out of China,” reports on such developments.

The reveals that American companies that are presently operating in China are moving their production activities to other countries.

By altering their supply chains and displacing China as a consequence, they improve the industrial and trading possibilities of other countries. Such developments help to accelerate the economic growth of the countries that become the beneficiaries of such decisions.

The article says: “Companies that make Crocs shoes, Yeti beer coolers, Roomba vacuums and GoPro cameras are producing goods in other countries to avoid US tariffs of as much as 25 percent on some $250 billion of imports from China.”

Further, it reports that iRobot would add a new Roomba production line in Malaysia and that Cummins engine would move its production line to India.

In addition, some furniture and boat makers selling to the US are also moving their production base, some of them citing Vietnam as the major beneficiary.

The above companies might not be considered very significant in the context of the overall magnitudes of activities in place, but they show a movement of the supply chain out of China. They are indications of geographic relocation of production toward other low-cost and competitive areas.

Further, a speculative news item in the same newspaper reports that Apple, a major tech company with a heavy production base in China, is studying the possibility of moving part of its huge production base to other countries. Southeast Asia is a probable direction, but India, Vietnam, and Indonesia have been in the play of such a study.

The gains of other countries arising from the trade war are widespread, but none appears to be as marked as that of Vietnam in the Southeast Asian region.

Recent US imports from some East Asian and other countries. To shed more light on these developments, I looked up the latest US import data with countries that are relevant to this discussion.

US imports from China continued to rise from 2017 to 2018, by a net increase of $34 billion. (Let us note that the actual level of US imports from China in 2018 was $539.7 billion!)

However, as the heat of the trade war was felt, US imports from China fell by as much as $31 billion in the first five months of 2019, from January to May (on a year-on-year basis).

US imports from a number of Asian countries have continued to rise from 2017 to 2018.

The increase of exports of South Korea during this period amounted to $3.9 billion, that of Taiwan by $3 billion. (These two countries are mega-exporters to the US. South Korea exported $74 billion in 2018; and Taiwan, $45 billion.)

The major Southeast Asian countries had rising exports to the US but by more modest scale, by less than a billion dollars during the period for each of Indonesia, Thailand, and the Philippines. (Among the three countries, the US imports the least from us, slightly over one-half of Indonesia’s and almost a third of Thailand’s.)

Vietnam’s performance during this period was most spectacular among the Southeast Asian countries. US imports increased by close to $3 billion more. (Total exports to the US by 2018 was $49 billion.)

US imports from India of $53 billion in 2018 are only one-tenth of China’s, but such imports had risen by more than $5 billion over 2017.

During the first five months of 2019 (over the same period), imports of the US from East Asian countries, especially from Vietnam, Taiwan, South Korea and, also, Cambodia have risen much more.

The scale of Vietnam’s additional exports over these five months (amounting to $6.7 billion) was almost as large as the combined additional exports of Taiwan ($4.07 billion) and South Korea ($3.64 billion). In the case of Cambodia, this was $0.415 billion).

The growth of exports from India is also substantial. They rose by $2.7 billion.

Even as I write this, Mexico has to be mentioned as a major net contributor to the rise in trade with the US. Some of this is the effect of its proximity to the US and the effect of NAFTA. But some of Mexico’s gains can also be attributed to the US-China trade war after-effects. US imports from Mexico in 2018 amounted to $346 billion, which was $34 billion above the 2017 level. Mexico’s $9.68 billion of additional exports over the first five months of 2019 was another record.

Philippine gains? The Philippines does not appear to be gaining much from these developments that are profoundly transforming some of our Asian neighbors, especially Vietnam.

I have referred to many of the reform that we need to address much more quickly. We must improve our policies by removing many barriers toward foreign direct investment policies.

Although there are bills in Congress designed to do this, none would be as good as addressing the constitutional restrictions that need to be dealt with. It is late in the day, but the nation lives long in the future!

Moreover, and I have emphasized this last week’s column, we need to undertake major reforms to make labor market policies more adaptable to the needs of the times.

My email is: [email protected]. For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.ph/gpsicat/