Fri, 25 Aug 2023 02:17:50 -0700WeeblyFri, 05 Jun 2020 07:00:00 GMThttps://longlifepen.com/proxy-economics/proxy-economics-the-impact-of-trade-war-on-chinese-satellite-economiesUS buyers are placing their orders in countries they hope won’t be affected by a collapse in US-China trade relations.  These investment sites’ response to the new demand will only be limited by the capacity of their infrastructure.

The international news is full of suggestions that US investment dollars and production contracts should go elsewhere in Asia, namely to Vietnam, Malaysia and Bangladesh, all major Chinese trade allies or beneficiaries of Chinese infrastructure investment.

Predictions about the fate of these satellite economies, due to a combination of China’s shifting internal economy, from production to consumption, and the dampening of trade with the US, are mostly bad for both short term and long term.

These neighbors of China are expected to suffer from a decline in Chinese trade because their products have been upstream to Chinese manufacturing (they export to China).

It is said a trade war could reduce Chinese growth by one percentage point. That would be bad news for any country that has been sending its products into the supply chain of Chinese exports.

As the old saying goes, “When elephants get into a tussle, they trample the smaller countries around them!”

And yet, it is an obvious choice for those invested in US-China trade to shift their whole trade cycle to these Chinese proxies, reserving trade to familiar and easy to understand channels.

For example, Taiwanese companies are moving their production of US products away from their Chinese plants to ones in Vietnam.

This trend is happening already, and it is reported foreign direct investment in Vietnam went up 86.2% in the first quarter of 2019, half of it Chinese.  Last month, exports to the US increased 29% and capital investment increased 200%.

The Malaysian economy also stands to gain when the giants lose, thanks to a tech-oriented infrastructure and a better educated work force.

Over all, the Southeast nations stand to gain as they fill the vacuum left by a lag in US-Chinese trade, and that will be a good thing for all sides.]]>