Although the US-China trade war is currently on a 90-day truce commencing 1 December, many companies are still making the switch to move their supply chains, or at least partially, out of China.
The American Chamber of Commerce in China surveyed 430 companies with supply chains in China, and approximately a third of those companies are planning to move their supply chains out of China. Of those who are planning a move, the top locations are in Southeast Asia and the Indian subcontinent.
During the truce, a 10% tariff on US$200 billion worth of goods coming from China to the US will be kept in place. However, if an agreement is not reached by 1 March, then the tariffs will increase to 25%, according to a US White House statement.
Companies are getting creative and negotiating free-trade agreements (FTA) with other nations. In November, Hong Kong and Australia signed an FTA, according to an HKSAR press release. The Secretary for Commerce and Economic Development, Edward Yau, said, “Hong Kong has set clear objectives in launching the FTA negotiations – to achieve zero tariffs for Hong Kong products to the Australian market and to secure Australia’s best FTA commitments for Hong Kong services.” Additionally, Hong Kong has signed three FTAs with 12 economies, including the ten member states of the Association of Southeast Asian Nations (ASEAN): Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam; as well as Georgia and Macau. Hong Kong is also concluding negotiations for an FTA with the Maldives.
Additionally, supply chain alternative markets in Vietnam and Malaysia are getting some attention, as reported by the South China Morning Post.
The jeans and denim manufacturing sector is already seeing changes, according to Sourcing Journal. Denim exports from Vietnam to the US grew significantly in 2018 to 46.2%, Cambodia denim exports increased by 27.5%, Bangladesh by 12.8% and Pakistan by 12.5%. Footwear exports are also seeing quite an uptick from other countries, Sourcing Journal reported. Vietnam, Indonesia, Cambodia, Bangladesh, several European countries and Mexico have all experienced significant increases in exporting product to the US. Additionally, Ethiopia and Myanmar are experiencing a surge in exports during the trade war.
Business Insider stated Vietnam and Thailand as the preferred destinations for alternative supply chain locations, but there are issues with skilled labour, infrastructure and red-tape. In the event a solution is not found for the US-China trade war, banking group BNP Paribas speculates US imports for low-end commodities such as shoes, toys and textiles will likely move to Vietnam, India, Bangladesh and Indonesia, while higher-end goods such as electronic equipment and machinery will likely be relocated to Mexico, Turkey and South Korea.