Trade

Chinese Firms Are Also Relocating to Avoid Trump’s Tariffs

JM Ashby
Written by JM Ashby

A relatively small number of American companies operating in China who find it economically feasible to move production to other countries to avoid Trump's tariffs have begun to do so, but so have Chinese companies that ultimately export goods to the United States.

Property managers who spoke to Bloomberg say Chinese firms are expected to buy as much as half of the industrial estates that go up for sale in Thailand over the next year along with a significant amount of real estate in Vietnam.

WHA Corp., the top Thai provider of such estates, said it expects Chinese companies to account for as much as half of its land sale contracts both this year and next, up from about 12% in 2018. [...]

Thailand has rolled out incentives including tax breaks to woo manufacturers seeking to skirt the tariffs the U.S. and China have imposed on each other. Recent evidence suggests rival Vietnam has pulled ahead in the race to lure producers.

For instance, more than three times as many companies are planning to relocate or divert production from China to Vietnam than to Thailand, according to research by Nomura Holdings Inc.

At the same time, the value of net foreign-direct investment applications to Thailand from Chinese firms is surging. It rose five-fold in the first half of 2019 compared with a year earlier, Board of Investment data shows.

The Trump regime recently imposed tariffs on Vietnamese goods claiming that they were actually Chinese goods that were routed to Vietnam before they were exported to the United States, and that may have been true, but those tariffs won't apply to goods that are entirely manufactured in Vietnam by Chinese-owned firms.

Trump initially justified launching a trade war by saying we must reverse our soaring trade deficit, but as you know our trade deficit has barely budged and may still set a new record at the end of the year. Trump himself has boasted that firms are moving out of China to Vietnam, but that only increases our trade deficit with Vietnam while leaving our overall trade deficit virtually static if not higher.

Playing whack-a-mole with our trading partners is an ultimately fruitless endeavor because the only thing that could substantially reduce our trade deficit is a dramatic loss of purchasing power for American consumers.

American consumers drive our trade deficit, not China, and the last time our trade deficit was reduced by an amount that actually matters was during the Great Recession.

  • muselet

    Wow.

    So, just to recap, Chinese firms move manufacturing to Thailand and Vietnam, while retaining ownership of the IP and facilities. Since salaries in those countries are, if anything, lower than those in China, the companies’ profit margins increase.

    In addition, because the manufacturing isn’t being done in China, Donald Trump’s tariffs won’t apply to the goods exported to the US from those Chinese-owned manufacturing sites.

    And as the cherry on top, the overall US trade deficit doesn’t move.

    Yep, Donald Trump sure is a very stable genius.

    *headdesk*

    –alopecia