Global Trade Reshuffle: Impact and Regional Responses
US tariffs against China have come into effect, heralding a significant shift in the global trade landscape. This development marks the beginning of what some experts are calling a “musical chairs” game in world trade.
“If there was any country that was going to face the ire of the president, it was China,” commented Justin Wolfers, an economist from the University of Michigan.
President Donald Trump imposed a 10% tariff on China, a move that, while lower than the 60% he had threatened, still sent shockwaves through global markets. Meanwhile, China retaliated with its own set of tariffs on US goods, igniting a trade war.
Historical Context: China’s Economic Impact
Under Trump’s first presidency, tensions with China led to a significant exodus of international and Chinese companies to Southeast Asia. This trend was further accelerated by the COVID-19 pandemic.
New factories opened in countries such as Vietnam, Thailand, Malaysia, Indonesia, and Cambodia, reflecting a diversification away from China. As Trump enters his second term, these dynamics could shift further.
Which Countries Could Benefit?
Geopolitical factors have long influenced global trade, and the current tariff situation is no exception. Experts caution that while some countries may benefit, the impact is highly unpredictable.
Some multinational companies are “quiet quitting” China and Mexico to mitigate tariff impacts, while others are diversifying their production partially. Baker Mackenzie, an international law firm, notes that the imposition of tariffs has reshaped the global business landscape.
Chinese EV company BYD opened its first factory in Thailand last year. (Reuters: Chalinee Thirasupa)
Firms in China are indeed diversifying, as highlighted by Deborah Elms, head of trade policy at the Hinrich Foundation in Singapore. Chinese exports to regions like Africa and Latin America have surged.
Sports fashion brands such as Nike, Adidas, and Puma have expanded into Vietnam, alongside electronics manufacturing. Malaysia, a strategic logistics hub, has also attracted firms relocating their data centers there.
Recent investments in electric vehicle factories in Thailand reflect growing interest in alternative markets.
Shoemaker Steve Madden also sought out countries like Cambodia, Vietnam, Mexico, and Brazil amidst US tariff pressures.
Potential Downsides
While some countries may benefit, others stand to lose. Jayant Menon, a senior fellow at Singapore’s ISEAS Yusof Ishak Institute, warns that the trade war could harm exports from China, exacerbate US inflation, and indirectly affect Southeast Asian economies.
“The tariff will reverberate throughout the supply chain, resulting in a drop in output and employment in all countries involved.”
Menon notes that the electronic supply chain in the region remains heavily centered in China, posing significant challenges.
Complexities in the New Era
The trade war now involves more complex measures, targeting ownership and nationality rather than the location of firms. Menon suggests these could have severe negative impacts on Southeast Asia.
Elms notes that products with Chinese content or raw materials could face tariffs even if produced in third countries, posing significant compliance challenges.
“What I think is the more likely outcome of all of this tariff chaos is that more and more firms will say, ‘Is it worth it?'”
Increased compliance costs and uncertainties may lead firms to reconsider their strategies, potentially steering them away from the lucrative US market.
Increasing Labour Costs
Labour costs in China have risen, with fewer young people entering the workforce. This trend, combined with geopolitical tensions, drives companies to explore other markets.
“The cost of labour has risen in China, and there are fewer young people entering the factories. These factors, combined with the uncertain US trade relationship, could influence decision-making.”
Khun Tharo, program manager at Cambodia’s Cambodian Centre for Alliance of Labor and Human Rights (Central), sees an opportunity for his country in the garment, footwear, and travel goods sectors.
Trade tensions and the pandemic saw a shift in global supply chains. (Reuters: Cindy Liu)
However, Cambodia still faces challenges, including heavy reliance on raw materials from China and issues with labor rights compliance.
Conclusion: Navigating the New Landscape
The imposition of tariffs by Trump and subsequent retaliation by China signals a fundamental reshuffle in global trade. While countries like Vietnam, Malaysia, and Cambodia stand to benefit, uncertainties remain high.
As companies navigate these complexities, the need for strategic diversification and careful compliance becomes paramount. The coming months will determine whether these shifts prove beneficial or detrimental.
Stay informed and engaged as we monitor these developments.
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