Research on the U.S. - China Tradewar and its effects on shifting manufacturing & investment away from China and towards the Southeast Asian region.

1. Golden Gate Ventures
Nadim Muzayyin
January 18th, 2019
THe U.S. - China tradewar: A boon for southeast asia

2. 1Nadim Muzayyin
Sources & Uses Assumptions
• President Trump has accused China of stealing intellectual property and
performing unfair trade practices against American businesses.
• In order to protect American producers and place pressure on the Chinese
government to change their practices, President Trump has implemented
tariffs and protectionists policies which have been met with retaliation.
Background & areas of dispute
THe U.S. - China trade war
US & China Tariffs
2 • In September 2018, the U.S. imposed a 10% tariff on $200B Chinese imports
and threatened to raise the duty to 25% in 2019.
• The US threatens to expand the levy to all products imported from China -
an amount that totalled US$520 billion in 2018.
• China’s retaliation prompted additional tariffs on $60 billion of U.S.
products, escalating a tariff war between the world's two largest economies.
Tariffs & Retaliation
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3. 2
stress on global business
• Businesses currently operating in China and exporting to the US have
become less competitive due to the tariffs.
• The trade war has prompted a sharp acceleration in global companies
shifting their supply chains to avoid US import tariffs on Chinese goods.
• Short Term - there will be adverse effects on the region as an exporting
base: Intermediate exports (textile & electronics) going into China and onto
the US will be impacted negatively.
• Long Term – ASEAN will be an attractive alternative supply chain base for
companies looking to diversify away from China. (Singapore, Thailand,
Cambodia, Vietnam).
• The shift is creating stiff competition to secure new facilities in neighbouring
countries and rebuild supply chains outside of China.
Tariffs hurting US Producers
Source: Bloomberg
Nadim Muzayyin

4. 3
Sources & Uses Assumptions
Electronics & Textile businesses make the move
Businesses shift from china to southeast asia
• GoerTek – Shandong-based manufacturer of Apple’s Airpods announced it would
move production of the wireless headphones to Vietnam due to the trade-war.
• Lever Style - Hong Kong based fashion producer, that works with designer brands
like Paul Smith and J Crew, has moved almost 50% of its output out of China.
• Panasonic - One of the first Japanese companies to base manufacturing in China, is
relocating its production of car electronics to Thailand, and Malaysia.
• Parsippany - NJ-based bicycle maker Kent International Inc shifting Chinese
production to Cambodia.
• The shift towards Southeast Asia has been the biggest shift in cross-border supply
chains since China joined WTO in 2001.
• Costs in Southeast Asian countries (Vietnam, Malaysia, Cambodia, Thailand) are
almost 30% cheaper than China.
• Companies are beginning to adopt more technologies into their supply chain as they
move to Southeast Asia, making their manufacturing process more efficient.
• Low tech goods and low value manufacturing have been the quickest to migrate while
higher value-added exports in the machinery, transport and IT category are likely to
take longer to relocate due to high R&D costs.
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Cheaper Production, & Increased supply chain technology2
Source: Bloomberg, U.S. Department of Commerce
Nadim Muzayyin

5. 4
More fdi, jobs, higher wages & stronger infrastructure
Benefits for southeast Asia
• ASEAN countries will benefit from more FDI, more jobs, higher wages, creation
of stronger infrastructure, greater implementation of technology in the supply
chain and increased exports.
• Each country has a different specialty and will see their respective industries
grow following the trade war: Thailand (automotive), Vietnam (textiles &
electronics), Cambodia (textiles), Malaysia (electronics).
• The relocation of plant capacity in part accounts for some of the ASEAN region’s
18 percent rise in Foreign Direct Investment (FDI) in the first half of 2018.
Thailand and the Philippines saw the biggest increases, with surges in
manufacturing investments. Vietnam is set to be the main beneficiary,
considering its low wages and tech savvy workforce.
Import substitution by Us & china
Source: Nomura
Nadim Muzayyin