Winners and losers . . .
Most Southeast Asian stock markets closed lower this week due to the demoralizing effects of the trade war. This is yet another indication of how the battle is roiling regional economies that have broadly benefited from the accelerating shift of not just lower-level manufacturing, but also tech and consumer goods companies, from China to lower-cost manufacturing economies such as Thailand and Malaysia. But in advanced manufacturing economies such as Singapore, companies have been hurt by the ongoing trade war due to its impact on materials they purchase from U.S. suppliers.
The realignment of value chains . . .
Google’s recent announcement that it would push to develop a Vietnamese production base is just one example of the trade war’s effects on international corporations, as the twin pressures of higher Chinese labour costs and spiralling tariffs drive firms to seek alternate production lines in order to drive their economically sustainable growth across markets. Historical reluctance to liberalize its trade has kept India largely locked out, further augmenting Southeast Asia’s attractiveness. Meanwhile, Japan and South Korea have started to realign their own value chains. Korean Air Cargo, for example, has followed companies’ shifting production bases to Southeast Asia. The launch of its freighter route between South Korea and Vietnam via China is an indicator of how Southeast Asian economies have siphoned off parts of the value chain from China.
Southeast Asia’s responds . . .
Some of these shifts are not an entirely new phenomenon: companies’ relocation in recent years due to higher costs in China have been accelerating, though many struggle to know where they should relocate. Trade patterns are shifting and companies are looking to work with Southeast Asian nations like Vietnam and the Philippines, where much of the growth now lies, in no small part due to increased/improved trade architecture. The CPTPP and ASEAN Free Trade Area remain strong pillars for Southeast Asian economies to economically engage, while the region’s economies have also begun looking north to the Eurasian Economic Union and east to the Pacific Alliance, potentially restructuring global trade long past the current trade war’s resolution.
- South China Morning Post: Singapore’s small firms hit by US-China trade war want help, but relief may take some time yet
- Nikkei Asia Review: Google to shift Pixel smartphone production from China to Vietnam
- Air Cargo World: Korean Air Cargo expands freighter network in response to trade war