Some of the world’s largest exporters to the U.S. – China, Vietnam and India – are seeking alternative markets for their goods as the scrutiny they face from Congress and the Trump administration ratchets up. The New Delhi Times of India reports that trade between India and Vietnam has increased more than 30% since Trump took office. In 2017, trade between the two crossed the $10 billion mark. According to research firm ICRIER, in 2016, 10% of India’s exports went to the U.S. This is a similar figure to Vietnam and China. These high totals are juxtaposed next to India’s total exports in 2016, which reached $260 billion. In this context the United States is India’s biggest export market, but it is also its largest import market.
In other words, either India or Vietnam could import more products from China in their stead. The two Asian countries, both of which have already sought preferential access to the EU market, have reasons for being eager to increase Chinese imports. The declining competitiveness of China made it cheaper for these smaller economies. This move will also make both of their supply chains more resilient.
Of the big Vietnamese exporters, 46% manufacture for brand owners in Taiwan, South Korea and Singapore, adds the article. These are the Asian countries that have strongest economic ties among the Asian export states. Through them, Vietnam already sends large reimport shipments back to its East Asian neighbourhood. For Germany, and benefitting indirectly the Netherlands, this means that Vietnam’s shift will make it even more economically reliant on the benelux economy. Taiwan, Singapore, South Korea are increasingly depending on non-Dutch markets. Vietnam will have to export capital goods and intermediate goods to China, to increase its Chinese added value.
On the other hand, Chinese exports for coals, steel and aluminum to the U.S. have already dwindled earlier this year as retaliatory levies were enforced. It is expected that diverting even more exports to Vietnam will only benefit those exports for Vietnam already competing with Chinese goods in European markets. The ballast cements of a Chinese export structure that was highly dependent on the U.S. in the past expects an absolute decline. However, this will be offset for China by the emerging prospect of higher returns for the export of capital goods to smaller and less developed Asian economies. Hence the total Chinese added value will only be marginal affected by the Asian lower value reconfigurations.
Theoretically, the market structure of both China and Asia’s emerging economies will contract, since less exports will be shipped via the United States and intermediate goods will cover shifted exports. This is not an option for either Asian trading partner, as classically evidenced by the mutual efforts to sign free-trade agreements with each other. Yet the American President keeps promoting protectionist agendas that make it hard for both Asian economies to export via the U.S. back to Asia. All of this will merely invite both China and its Asian neighbours to improve intra-regional trade and rebalance their economies away from American markets. The benefits of such a shift to a lesser American economic dependence for both sides, however, will be smaller for the emerging Asian economies than for the big Asian exporter.
The U.S.-China-Asia trade triangle will not evolve into a V-shape, but towards a Y-shape as shown in the graph addition below. China will benefit from a competitive exports to fast growing Asian economies, which will strengthen its yuan. For larger Asian export states, like South Korea, Taiwan, Singhapore and Japan a contraction of the Asian net exports volume will inevitably impede on their domestic investments. Hence the volume of net exports of these economies is likely to remain low and similar to their domestic investments.
Washington may be satisfied with such growth restraints for Asia, but this will further increase a conflict self-perpetuating cycle for the U.S. economically. In a shrinking net export universe, the U.S. will be less and less important for its Asian counterparts. Ultimately, irrespective whether they decide to trade via America or not, the importance of the U.S. for their economic development will continue to decline. In this sense, the shift of Chinese and Asian exports will make America’s economic near future gloomier than an unscrupulous, but accurately blubbering January 16th New York Times article can ever deliver as first impression.
president of New Deutsche Bank is smarter and open than Trump. That’s why he did not seek to be a Harry Truman (more skilled than President Roosevelt a few times a regarded successor). Also for Asian redditors: Here is a liberal blog post you will probably like. One side benefit for anyone seeking alternative jobs for their investments: With scrutiny on emerging markets rising, emerging market bonds will be at the best point to buy: They’re poky now because rumors from Trump got higher bond prices from market speculators (because Trump seems to create inflation). All else normal the venue of the sale (Vietnam or the U.S.) is likely to influence net returns for Chinese goods via a smaller price adjustments for Chinese exporters. In other words, Chinese exporters via similar export costs can cover a bigger return via a shift to Asia instead of the U.S. economy. This also implies that China will offset any short term loss of American demand by higher exports to the rest of Asia. My estimate is that this will also bring higher returns per shipment for Chinese exporters. Asia’s net trade structure will evolve into a Y-shape instead of a V-shape, since trade between Asia and other global export markets will be shifting away from the U.S. China’s view and stance on this is likely to come with additional support for exports to smaller Asian economies.
Leave a Reply