Trade war and costs speeding shifts of production to ASEAN and USA

Manufacturers are expanding to other regions in Asia because of rising mainland labor costs in recent years. This move is speeding up with the Trade War. Hong Kong and mainland companies are planning to hire more staff in cheaper regions of Asia as trade tensions between Washington and Beijing prompt firms to shift parts of their production lines to India, Bangladesh, Vietnam, and Malaysia.

They are not completely moving out of mainland China but they want to set up additional production lines in the Southeast Asia countries.

Wages in Vietnam are half the wages in China.

However, complex products that involve plastics, electronics, printing, packaging are things where China will remain dominant for the next ten years.

Since 2001, hourly manufacturing wages in China have risen by an average of 12% a year. The yuan exchange rate became 10% cheaper. The 25% tariffs is speeding up shifts from China by about a year.

China already has highly productive and skilled workers. China is increasing automation and capital equipment investments.

In 2015, China launched a Made in China 2025 strategic plan. They wanted to increase the Chinese-domestic content of core materials to 40% by 2020 and 70% by 2025. The plan focuses on high-tech fields including the pharmaceutical industry which are dominated by US, Japan and Europe.

Many Chinese companies were already working hard to move up the value chain. The Made in China 2025 plan subsidizes the modernization by about 10-20%.

World Consumers

The US has $13 trillion in consumer spending in 2018. This will increase to about $13.6 trillion in 2020.

China claims that 80% of GDP growth in 2018 is from increased domestic consumer spending. From 2010 to 2017, consumption was just 50 percent of China’s economic growth.

China’s consumer spending is about $5 trillion in 2018 and was forecast to be about $5.9 trillion in 2020.

China’s consumer market is set to expand by about 12% every year (in US dollar terms) to reach a value of $8.4 trillion by 2022. The $8.4 trillion was based upon an exchange rate where the yuan was 10% stronger.

China ran a $375 billion goods trade surplus with the United States in 2017.

Western Europe’s total retail market is expected to grow by 1.6% in 2018 to $3.9 trillion.

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