The US and China won’t be the only ones affected in the trade war raging between the two countries. As companies scramble to find ways around the ever-increasing tariffs that the world’s two largest economies impose on each other’s goods, other countries are being drawn into a conflict that might have no winners.
The world could only watch as the latest developments played out online heading into the weekend. “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing our companies HOME and making your products in the USA,” President Trump tweeted Friday in response to Chinese president Xi Jinping‘s threat to impose tariffs on $75 billion worth of US goods. Speaking to reporters at the G7 summit in Biarritz, France Sunday, Trump claimed that he could use emergency powers to force private companies to relocate out of China, but said he has no current plans to do so.
However dubious Trump’s claims are, many companies based both in the US and abroad already are looking for alternatives to China due to the trade war. Plenty of countries offer attractive options—although, it seems, not so much the US.
For example, last year solar energy technology company Enphase, which is based in California, announced it would produce some of its products in Mexico to avoid tariffs. Likewise, Apple announced that it would move some of its iPhone assembly from Taiwanese manufacturing company Foxconn’s facilities in China to its facilities in India. Southeast Asian countries like Thailand, Malaysia, and especially Vietnam have been some of the biggest beneficiaries of these shifts. Nintendo, Sharp, and Kyocera, for example, have all recently announced plans to shift some production from China to Vietnam.
“Companies are diversifying outside of China,” says Brian Keare, an executive at business analytics company Incorta and former CIO of manufacturing company NorTek. “The era of putting all your eggs in one basket is over.”
US-ASEAN Business Council CEO Alex Feldman says that this isn’t an entirely new phenomenon. With wages in China rising higher, companies have been exploring other parts of the world in search of cheap manufacturing labor for years now. For example, South Korea-based Samsung has long manufactured products in Vietnam. New trade agreements are also making Southeast Asia more attractive for countries in the broader Asia-Pacific region.
The trade war appears to only be accelerating those trends. Exports out of Vietnam have risen from about $176.6 billion worth of goods in 2016 to $290.4 billion last year, according to the International Trade Centre. Many of those goods were bound for the US—last year Vietnam had a $39.5 billion trade imbalance with the US, in Vietnam’s favor, according to the US Census Bureau. “By and large Vietnam is winning the US–China trade war, and I expect them to continue to win it,” says Eric Miller, a global fellow at the Wilson Center.
But Vietnam isn’t the only winner. Mexico passed China this year to become the US’s largest trading partner, though the US still imports more products from China than Mexico. The $9.9 billion trade deficit between the US and Mexico, in Mexico’s favor, for the month of June this year was the largest monthly imbalance on record between the two countries, according to the Census Bureau. India, Malaysia, Thailand, and Taiwan all saw upticks in exports to the US and around the world last year, as the US trade deficit hit a record high of $891.3 billion for 2018. Economists argue that trade deficits aren’t necessarily a bad thing. But it’s clear that Trump’s attempts at lowering the deficit haven’t worked.