Trade War Worries? Leave China for Southeast Asia

♠ Posted by Emmanuel in , at 10/22/2018 06:24:00 PM
"Made in China" gives way to "Made in Southeast Asia"?
The "balloon effect" is a demonstration of the phenomenon of displacement. Say you push down on manufactured exports emanating from China. Because demand for these goods still exists Stateside and in other destinations, other parts will inflate with the targeted activity. And so it is with American efforts to punish Chinese transgressors over supposedly unfair trade. Instead of these trades stopping altogether--or production moving back Stateside as Trump fantasizes--the end result is production moving to even lower-cost destinations elsewhere in Asia.

Among the beneficiaries of the trade war as a result of this "balloon effect" are countries of Southeast Asia that aren't hit with tariffs on PRC-made products, according to Bloomberg:
Southeast Asia is seeing a boom in foreign direct investment as the intensifying trade war between the US and China prompts companies to shift production to the region. Vietnam saw manufacturing inflows jump 18% in the first nine months of 2018, driven by investments including a $1.2 billion polypropylene production project by South Korea’s Hyosung Corp, according to a Maybank Kim Eng Research Pte note on Monday.
Supposedly, even the Philippines and its drug warrior of a president are benefiting:
Vietnam saw manufacturing inflows jump 18% in the first nine months of 2018, driven by investments including a $1.2 billion polypropylene production project by South Korea’s Hyosung Corp, according to a Maybank Kim Eng Research Pte note on Monday. In January through July, Thailand’s net FDI rose 53% from a year earlier to $7.6 billion, with manufacturing inflows surging almost five times, according to central bank data.

In the Philippines, net FDI into manufacturing surged to $861 million in the same period from $144 million a year earlier. “The US-China trade war may be attracting more firms to set up in Asean to circumvent the tariffs,” Maybank economists Chua Hak Bin and Lee Ju Ye said in the note. “Sectors such as consumer products, industrial, technology & telecom hardware, automotive and chemicals have indicated interest in Southeast Asia.”
While the Chinese may lose out here on the face of it, the status quo is largely the same for importers of these Asian-made goods insofar as multinationals are making the same things in the wider Asian region. Meanwhile, Southeast Asian countries stand to benefit indirectly from the trade war. I suppose China wanting to move up the value-added ladder means giving up these lower-value-added activities to others. Hence, American trade belligerence arguably just sped this inevitable process.