A thaw in the Sino-U.S. trade dispute, as hinted in Washington this past week, would help restore global supply chains but thin the outflow of investment capital from China to Southeast Asian countries that are eager to receive it, experts say.
Reductions in punitive import tariffs between the two powers, which have been locked in a trade dispute since early 2018, should revitalize the business of global parts providers, assemblers and sellers of high-value items such as consumer electronics, the analysts say.
However, they say that Indonesia, the Philippines, Thailand and Vietnam, along with smaller Southeast Asian countries, should expect less investment by multinationals trying to sustain U.S.-bound exports without shipping from China. Southeast Asian countries look to that investment to build economies and lift people out of poverty.
In addition, Taiwan gained from the trade dispute as investors moved production and capital back home from China.
"I think the nature of value chains and supply chains is interdependent, so you might get a bit more in your country as a result of people moving out of another, but at the end of the day you want a system that supports the whole chain and supports it well," said Jayant Menon, a visiting senior fellow with the ISEAS Yusof Ishak Institute's Regional Economic Studies Program in Singapore. "You don't want this trade war interfering with it."
US to consider tariff exclusions
U.S. Trade Representative Katherine Tai said October 5 that the United States would start a "targeted tariff exclusion process" for China.
Her announcement doesn't end the trade dispute that flared under former President Donald Trump, who said China had committed years of "unfair trade practices," but it may signal an eventual change under President Joe Biden.
"The exclusions process is a key part of the Biden-Harris Administration's deliberative, long-term vision for realigning the U.S.-China trade relationship around our priorities and making trade work for American workers and businesses," the U.S. Trade Representative's office said in the October 5 statement.
China welcomed the move, the official Xinhua news agency said the same day. Xinhua quoted Ministry of Foreign Affairs spokesperson Hua Chunying as saying, "We hope the United States will … work with China to strive for healthy and steady development of China-U.S. trade and economic relations."
The dispute has hit $550 billion worth of goods, including $350 billion originating in China.
Tai said the United States had yet to review its January 2020 "phase one agreement" with China over the trade dispute. The United States had agreed to reduce tariffs, while China said it would buy more U.S. agricultural products.
'A rising tide raises all boats'
A reduction in Sino-U.S. tariffs would jumpstart the manufacturing of electronics, machinery and transportation equipment, Menon said.
China's factories generated $3.7 trillion in "real manufacturing value added" in 2017, before the trade dispute, the Boston Consulting Group reported. Goods such as machinery and electronics – compared to lower-value items including garments and shoes – represent "most of the action" in global trade, Menon said.
China does a bit of everything, and the consultancy says its value-added factory output had surpassed every other country in 2017.
Specific value-added imports from China include televisions, smart speakers and consumer drones. Apple, to name just one known brand, has grappled with rising costs during the trade dispute as it contracts final assembly to two Taiwanese firms with factories in China. Apple sources parts to a list of companies in Taiwan, Japan and South Korea.
"Of course, it would be better if things were better between these two countries," said Jonathan Ravelas, chief market strategist with Banco de Oro UniBank in the Philippines. "A rising tide raises all boats, so if the U.S. and China are doing well, everybody benefits."
Limited impact on Southeast Asia, Taiwan
Manufacturers that have steered investment out of China into Southeast Asia since 2018 are concentrated in footwear, garments and ordinary consumer goods, experts say. Those exporters have "fixed costs" and "divisible technology," Menon said. Southeast Asian factory-heavy countries offer supportive government policies and infrastructure, as well.
"If there's going to be some difficulty in (Sino-U.S.) trade, then definitely peripheral countries like the Philippines would benefit," Ravelas said.
American companies favor Vietnam for its cheap labor especially if they lack automation, said Frederick Burke, Ho Chi Minh City-based partner with the law firm Baker McKenzie.
"We still have clients looking at Vietnam, they're saying this is a long-term plan, the COVID-19 pandemic is going to be over before too long and they want to get in while they can," Burke said. "Vietnam probably is still going to have some sort of a positive growth rate this year."
The country's top retail, property and manufacturing conglomerate, Vingroup, declined to comment on shifts in Sino-U.S. trade, with a spokesperson saying it would "decide target markets later."
Manufacturers were exploring outside of China before the trade dispute as Chinese wages rose and environmental laws tightened, Menon noted. The offshoring trend will probably hold after the trade dispute, though with some tapering, he said.
Taiwan would feel little pinch as a glut in demand for its most prized export, semiconductors, keeps growing, said Liang Kuo-yuan, president of the Taipei-based Yuanta-Polaris Research Institute.
"The demand for chips is still there and moreover there's a natural growth following changes in the industry," Liang said. "Perhaps in the end competitiveness will be impacted, but the issue is, it's still early, so if you ask about next year, I'd say pretty sure Taiwan will still be very strong in semiconductors."