Trump's trade war is not just an American-Chinese problem



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The USA and China will not be the only one to be affected by the trade war between the two countries. As companies struggle to find solutions to the ever-increasing costs that the two largest economies in the world are imposing, other countries are dragged into a conflict that may not have winners.

The world could only watch the latest developments unfold online as the weekend approached. "We are ordering our major US companies to immediately start looking for an alternative to China, including bringing our companies home and making your products in the United States," said President Trump. tweeted Friday, in response to the threat of Chinese President Xi Jinping to impose duties on US goods worth $ 75 billion. Addressing reporters at the G7 summit in Biarritz, France, on Sunday, Trump said he could use the emergency powers to force private companies to leave China, but N & # 39; 39; has no intention of doing so.

If doubtful is Trump's claims, many companies based in both the United States and abroad are already looking for alternatives to China because of the trade war. Many countries offer attractive options, even though, it seems, not so much the United States.

For example, last year California-based energy company Enphase announced that it would manufacture some of its products in Mexico to avoid tariffs. Similarly, Apple has announced the transfer of some of its iPhone assembly facilities from the Taiwan-based Foxconn manufacturing company in China to its facilities in India. Countries in Southeast Asia such as Thailand, Malaysia and especially Vietnam have been among the biggest beneficiaries of these changes. Nintendo, Sharp and Kyocera, for example, have recently announced plans to transfer part of their production from China to Vietnam.

"Companies are diversifying out of China," says Brian Keare, leader of the Incorta business analysis company and former IT director of the NorTek manufacturing company. "The days of putting all your eggs in one basket are over."

Alex Feldman, CEO of the US-ASEAN Business Council, says that this is not an entirely new phenomenon. As wages in China are on the rise, companies have been exploring other parts of the world for years for low-cost labor. For example, Samsung, based in South Korea, has long been manufacturing products in Vietnam. New trade agreements also make South-East Asia more attractive to countries in the wider Asia-Pacific region.

The trade war only seems to accelerate these trends. Exports from Vietnam rose from $ 176.6 billion in goods in 2016 to $ 290.4 billion last year, according to the International Trade Center. Many of these goods were destined for the United States. According to the US Census Bureau, Vietnam had recorded a trade imbalance of $ 39.5 billion with the United States last year. "In general, Vietnam is winning the trade war between the United States and China and I expect that they will continue to win it," said Eric Miller, an international expert at the Wilson Center .

But Vietnam is not the only winner. Mexico surpassed China this year to become the largest trading partner of the United States, although the United States still imports more Chinese products than Mexico. According to the Census Bureau, the $ 9.9 billion trade deficit between the United States and Mexico, in favor of Mexico, was the largest monthly imbalance ever recorded between the two countries for the month of June this year. India, Malaysia, Thailand and Taiwan saw a slight increase in their exports to the United States and worldwide, with the US trade deficit reaching a record of $ 891.3 billion for the United States and the United States. 2018. Economists say that trade deficits are not necessarily a bad thing. But it is clear that Trump's attempts to reduce the deficit have not worked.

But Feldman said the trade war was not a good thing, even for countries that seem to benefit at the moment. He quotes an old proverb: "When two elephants fight, it is the grass that suffers". In other words, everyone is trampled, regardless of the winner. "It is in the interest of all to see this niche resolve and return to normal US-China trade relations," Feldman said.

One of the main reasons why other countries are worried about the US-China trade war is that these two countries are huge markets for products around the world. Rates, and fears of tariffs, could mean that consumers and businesses in both countries end up buying less. According to a Bank of America Merrill Lynch study, Vietnam has a trade deficit with China, a deficit that increased exports to the United States and other countries does not quite offset. This is not necessarily a cause for alarm, because again, deficits are not always a bad thing, but they show the complexity of the situation in Vietnam. Meanwhile, Germany, one of the largest manufacturing economies outside of China, is affected by the fact that China imports fewer German-made automobiles.

Another potential cause for concern? Tariffs could depress demand for a wide range of products made in China whose components are manufactured elsewhere, causing economic difficulties in many countries. Some of this money could be offset by a total shift in production out of China, but it takes years to build new factories and train employees.

For countries such as Vietnam and Mexico, the success of the US-China trade war may lead to a re-examination of their own trade imbalances with the United States. "If someone becomes well known as" new China, "the White House could take action against them," Miller said. Trump has already called Vietnam "the worst aggressor of all" in remarks made last June and said that his country "benefits from us even worse than China". His administration is concerned that Chinese sellers are shipping their products through Vietnam in order to avoid tariffs, a process known as transhipment that probably contributes to the trade imbalance between China and Vietnam and inflates the numbers. Vietnamese exports. The Vietnamese government is cracking down on transhipment, fearing that this will put the country in conflict with the United States. The Trump administration has already imposed tariffs on Vietnamese steel. But even if this practice is totally destroyed, it will not necessarily be enough to satisfy the commercial imbalance obsessed by Trump.

Success can be precarious in other respects. Feldman also fears that Southeast Asian countries will end up with a manufacturing demand that exceeds their ability to manage. He points out that while South Asia is home to some of the world's largest populations, the population of all countries in the region is less than half of the Chinese population. No country is able to become a complete replacement for China; Any country that sees an increase in demand may have to turn down potential customers.

Having more work demands than a country can handle may seem like a good problem, but according to Feldman, entire countries or regions could forge a reputation as a bad place to do business if Infrastructure of a country is overloaded and that companies end up having a bad experience. with, say, overcrowded airports or builders who cancel their contracts.

Many of these problems are hypothetical. But that's part of the problem. The trade war has created uncertainty for businesses and economies around the world, and the volatility of the Trump administration worsens the situation. For example, in May, Trump threatened to impose a 5% tariff on immigration policy in Mexico. The administration has retreated, but business concerns persist.

"Companies do not know where they should be located," said Barbara Weisel, managing director of Rock Creek Global Advisors and former US Southeast Asia Trade Representative. "They do not know which country will be the next target, which is causing companies to slow down their investments, their decisions."


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