By Cate Hull
Australia and Southeast Asia, along with the rest of the world, are closely watching the trade war developments between the United States and China and any fall out that skirmish will have on other nations.
The recently signed United States-Mexico-Canada Agreement (USMCA) calls for manufacturers to source more parts from member countries to avoid penalties. That could cost China.
U.S. President Donald Trump said the trade deal would provide a big boost for North American businesses and jobs.
“We’re going to be a manufacturing powerhouse and allow us to reclaim a supply chain that has been off-shored to the world because of unfair trade issues,” said Trump.
Henry Gao, an associate professor of law who specializes in trade at the Singapore Management University, said the president might be on the right track.
“The new impact would be the reshuffling of the supply chains to the detriment of China,” Gao said in a report on the marketplace.org website.
Some companies have already shifted parts of their production out of China because of things like increasing labor costs and heavy regulation.
“I don’t have a single client that looked at moving back to the U.S. All of them are looking at Asia,” said Alberto Vettoretti, managing director at Dezan Shira & Associates. The firm advises foreign investors in China.
Specifically, his clients are focusing on Southeast Asian countries, such as Vietnam and Cambodia.
“By erecting trade barriers, Trump has effectively added a cost which eats into the profit margins of suppliers that are selling components to manufacturers and aftermarket service providers in the U.S.,” said Bill Russo, an ex-Chrysler executive in China who runs the consultancy Automobility in Shanghai.
“These suppliers must now evaluate whether to invest in alternative locations to produce these components in order to claw back the lost profit,” Russo said.
Singapore Management University’s Gao believes that with the USMCA deal, manufacturers in low-cost Southeast Asian countries will also be hit. According to Gao, the big winners will be Canada, Mexico, plus any other state that has a free trade agreement with the United States, such as Australia, Singapore and Korea.
However, he said any boost to U.S. manufacturers will be short lived because China can produce so many things that other countries cannot and at a cheaper cost.
Michael Zakkour with the consulting firm Tompkins International does not see USMCA dislodging China from its central role in global trade.
“China is still going to be an integral part of the world’s supply chain, a consumer market and a major exporter,” he said.
Zakkour said the CEOs he advises have no immediate plans to shift production. He is telling them to take a wait-and-see approach.
“In a trade war, there are no winners,” Zakkour said.
He is optimistic that U.S.-China trade tensions will soon be resolved.
Cate Hull is the CEO of FreightExchange, a Sydney-based logistics and freight management company.