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Manufacturers want to quit China for Vietnam, but find it impossible

148 points by chmaynard 7y ago

whatshisface 7y ago
This tariff situation is quickly becoming an amazing opportunity for developing countries. The labor shortages being talked about can only be resolved through higher wages, which means that the people at the bottom will get a cut of the new money. In the end the world will be a lot richer and the money will be in the hands of relatively livable countries like Vietnam. (The Vietnamese government is actually pretty good in terms of freedoms.) It's also politically preferable for the US to depend on a hundred small countries instead of one big competitor. It may also help cushion the next global recession, as each of these international markets will be less correlated with each other than one company in China is with another company in China. Chinese companies are very tightly integrated with the government's balance sheets, meaning that you can't diversify within China. If one company goes under that means the subsidies ran out, and that means all the other subsidies are running out, which means the economy is toast.
- jbob2000 7y ago
  It could backfire if China sees these smaller countries as a threat and moves to block them. Vietnam borders with China, no doubt they are as dependent on China as, say, Canada is with the US. I could see China saying "hey if you trade with the US, we're putting 20% on your exports to China"
  - zhdc1 7y ago
    Wouldn't happen. The Vietnamese hate the Chinese more than the Chinese hate the US. It's more likely that the US eventually extends tariffs to other SE Asian countries. That said, I think the real story is companies preemptively shifting manufacturing out of SE Asia entirely in order to get ahead of the next wave of offshoring.
    - jbob2000 7y ago
      The fact that they hate each other lends even more credence to my theory - it’s that much easier to put tariffs on them. 25% of their imports and 14% of their exports are with China [1], China could definitely hurt Vietnam if they become too close with the US. [1] https://en.wikipedia.org/wiki/Economy_of_Vietnam https://en.wikipedia.org/wiki/Economy_of_Vietnam
      - seanmcdirmid 7y ago
        China would rather not play with fire here, the Vietnamese night invite the USA to establish a naval base or something if pushed too far, especially considering the current South China Sea contests. (Ironically a reversal of USA support for China during the sino Vietnam war)
        ksec 7y ago
        I wonder what are the possibilities of that happening? It is sort of the indicator of how much Vietnamese hate China, by settling with US.
        zhdc1 7y ago
        It's unlikely. Chinese intervention in Korea and Vietnam was mainly about keeping US troops off of the Chinese boarder. China's invasion of Vietnam was also partially about limiting Soviet influence in that country.
  - duxup 7y ago
    China and Vietnam historically haven't gotten along well anyway. And I'm not so sure how many Asian nations would go along with that whole situation. Would be a lot of doubling down there by China... and when / if THEY want to offshore some things, where do they go?
    - sooper 7y ago
      My understanding is that China is offshoring a lot of stuff to Africa. Wages are still lower there.
      - markus_zhang 7y ago
        China has been offshoring to SE since years ago too.
    - zhdc1 7y ago
      Africa like the poster above mentioned.
- LeanderK 7y ago
  > The Vietnamese government is actually pretty good in terms of freedoms. Wait, what? They recently kidnapped an ex-party member in germany. It was 2017 or so. I can't believe that a country which honors you freedom would do something like this.
  - whatshisface 7y ago
    They are a one-party communist state and so are not nearly as good as America, but on the economic freedom index they are close to Hong Kong. Not the greatest country but better than some others where every industry is national (not just China). https://www.globalpropertyguide.com/Asia/Vietnam/economic-freedom-5-years https://www.globalpropertyguide.com/Asia/Vietnam/economic-fr...
    - sbuttgereit 7y ago
      The link you sent talked about changes in economic freedom... but barely made it clear what they are talking about or measuring. Nevermnind if a site dedicated to global property purchases is likely to be an authority on economic freedom. That site does however say where they get their data: the Heritage Foundation's Economic Freedom Index. So how does that source characterize Vietnam? "Mostly Unfree", 128 in their ranking of countries. And Hong Kong... "Free", 1 in their rankings... though we'll see how well that holds up over the next few years. So not so close to Hong Kong. Heritage goes on to say... "Background The Socialist Republic of Vietnam remains a Communist dictatorship characterized by repression of dissenting political views and the absence of civil liberties. Economic liberalization began in 1986 with doi moi (renovation) reforms to transition to a more industrial and market-based economy. Vietnam joined the World Trade Organization in 2007 and signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in 2018. Vietnam’s economic growth, based on tourism and manufactured exports, was among the world’s fastest during the decade-long tenure of former Prime Minister Nguyen Tan Dung. In 2016, Dung was forced out after losing election as General Secretary of the Communist Party of Vietnam. State-managed economic liberalization continues under the leadership of General Secretary Nguyen Phu Trong." So while they do say that things are getting better... they aren't exactly calling it Hong Kong just yet. https://www.heritage.org/index/ranking https://www.heritage.org/index/ranking
- Steve44 7y ago
  I'm currently in the food packaging industry and over the past few years we have been seeing manufacturing move from China to Vietnam and India. Likewise in Europe it’s moving from Poland out to Romania, Greece, and also Turkey. These decisions are largely based on manufacturing costs.
  - ksec 7y ago
    Working in Food industry as well, do you have any web site that specialise in Food Packaging news?
    - Steve44 7y ago
      Have a look at a the trade association http://foodservicepackaging.org.uk/ http://foodservicepackaging.org.uk/ and also https://www.packagingnews.co.uk/ https://www.packagingnews.co.uk/ which covers other packaging but there is a fair amount of foodservice items covered.
- shshehe 7y ago
  You have no idea what vietnam is like. Someone capable of spewing such garbage with confidence has no credibility about anything
  - remotecool 7y ago
    I do. I spend 3 months/year there. Cops are very corrupt and most people won’t even report traffic accidents. If you are a foreigner/non-vietnamese, many hospitals won’t even treat you. Abject poverty, aside from a couple of big cities. Some may like it because with a little money, you can get away with anything.
    - phonon 7y ago
      What areas do you recommend?
- bduerst 7y ago
  Which would be the case if the tariffs were China-only, but the current presidential administration is enacting tariffs on many other countries, like Mexico, Brazil, and S Korea. Also, the upcoming Regional Comprehensive Economic Partnership (RCEP) meeting in November could be used by China to unify most of APAC against the U.S. The U.S. TPP was a blocking move to prevent the RCEP, which in it's current form covers half the world's economy (India, China, and others). Negotiations for RCEP have been slow but with the U.S. now burning trade bridges with it's partners, we're probably going to see something interesting happen in November.
  - dmix 7y ago
    I've never understood how Asian regional free trade agreements and China providing loans to developing countries is really a threat to the west. Why exactly should the World Bank and the US/Europe be the only top players in the game again? Has all the strings attached to that help really made the world a better place? As far as I'm concerned extreme poverty or simply poverty is enough of a goal to target. Attempting to forcefully push country's local politics and governance forward without solving the basic problems of quality of life and all of the luxuries that allow people to focus on less local problems affecting their lives directly, like what they are going to eat next, freeing people up to focus on government and community. That seems like an essential first step. Otherwise youre just mining the same small group of influential people already in those countries and expecting different outcomes. Not changing leadership or reducing corruption organically through education and the empowerment an influential middle class brings to politics.
    - panda88888 7y ago
      > I've never understood how Asian regional free trade agreements and China providing loans to developing countries is really a threat to the west. It’s a threat from the US perspective, in the US national interest. Currently, the US is the top dog internationally, both economically and politically. As China increases its influence especially in the Asia and Africa region via economic investment and, potentially, demonstration of military prowess, it necessarily means US influence in said region decreases. This decrease in soft power of US means it is more difficult for the US to push for US-friendly policy in said region/country, which is detrimental to the US national interest.
- zaphirplane 7y ago
  Where goes the money for the subsidy come from
- est 7y ago
  > It's also politically preferable for the US to depend on a hundred small countries instead of one big competitor FTA: The Chinese model of the past 20 years thrived on suppliers being close to each other, making production quicker, less expensive and more efficient. Now, as operations become more fragmented, they are threatening to raise costs, stretch delivery times and expose companies to multiple tax and labor regimes
- mr_toad 7y ago
  > In the end the world will be a lot richer Except for US consumers.
- tryitnow 7y ago
  I hope so. But I think this may only hold if firms think that these tariff disputes will be an ongoing thing, only then will they make capital expenditures in developing countries.
deleted 7y ago
[deleted]
mk_net_safer1 7y ago
capitalist has no motherland. where there is money, where is their motherland.
josephpmay 7y ago
1) For anyone wondering, yes, many of these companies would have the same (or worse) problems if they tried to manufacture in the US. Our domestic supply chains for a lot of industries have dried up (or never developed). US factories also usually have higher minimum quantities and take much longer to tool up. 2) I'm surprised the article didn't mention Africa at all. A lot of Chinese industrialists are investing in Africa, and I suspect that Chinese-style supply chains have a good chance of developing there. If I was looking for a country to for long-term manufacturing strategies right now, I'd be taking a hard look at African countries.
- reaperducer 7y ago
  Our domestic supply chains for a lot of industries have dried up (or never developed). You make it sound like supply chains are permanent, immutable things that can't be created and dismantled at will. It happens all the time. Yes, there are countries where an existing supply chain is an advantage. But those supply chains weren't always there. They were created when manufacturing demand arrived. The same thing can happen in the United States, Canada, Europe, Brazil, or pretty much any other company. It's happened before. It'll happen again. If I was looking for a country to for long-term manufacturing strategies right now, I'd be taking a hard look at African countries. Agreed. I read/heard somewhere the notion that Africa is tired of making plastic shoes for China, and wants to start moving toward electronics. Considering the labor availability, sea access, and mineral wealth available, I could see that happening.
- ThrustVectoring 7y ago
  The "natural" distribution of manufacturing capacity roughly mirrors the population distribution, and Africa is definitely under-provisioned in this respect. Respect for property rights and political stability is definitely a downside, though. The first industrialists that manage to build out after the last land war or socio-political upheaval are going to get some really nice returns, though.
  - Haga 7y ago
    Respect for contracts Respect for time Nothing in Africa ever works long. People receive there earnings and quit the job for a week without warning.
Gustomaximus 7y ago
A big problem no-one seems to talk about is 'consistency'. This is undervalued variable to capital intensive business. All these supply and other issues are readily solvable with time/money but why would you when you don't know if these tariffs will double tomorrow, go away or stay as is for the next 6 years. Who will invest huge capital when a political whim seems likely to change the landscape at any point.
dirtyid 7y ago
It took China almost 30 years to cultivate economic development zones into the logistics chain to build the first iPhone. That kind of development can't be replicated in a few years, is likely out of reach for smaller nations (read anyone except India) or viable in a geographically distributed fashion. The problem isn't just moving factories but have a geographically centralized logistics chain where thousands of components are within hours of each other, supported by millions of specialized high skill labor, preferably with similar language proficiency, where new production can be rapidly iterated to meet market demands. A "small" country with 100 million people are not going train a large proportion off their entire population to fill football fields with tooling engineers and other specialists. It's just not demographically in their cards. And it's that level of centralized scale that enables China to manufacture high end electronics in the timescales that modern business cycles require. That's why all the outsourced electronics production so far are low end assembly in countries adjacent to China where components made in China (other than very high end IC) can be quickly shipped to them have locals can be trained to assemble processes that has been matured and figured out in China. If all Chinese manufacturing magically shifted across ASEAN countries, I don't think there would be the collective capability to organize logistically to produce and iterate a new annual Apple product launch - the entire Tim Cook screw anecdote. The nature of manufacturing has changed. Maybe India can replicate that, they are not starting from zero, but I don't know if Indian democracy can make the extremely unpopular changes Chinese state directed capitalism / SEZ went through. This isn't an issue that can be solved by funneling money / FDI, these things take much longer time than a few years and still can't replicate the advantages of Chinese scale on things where scale matters. There's a qualitative difference in different governance models ability to execute policy and realize capabilities. Distributing Chinese manufacturing among bunch of competing countries with inevitably expensive and inefficient physical and regulatory interconnects just won't produce the same capabilities. Even if we ignore the fact that countries like Vietnam are reaching infrastructure and labour limits, i.e. they literally at land, road, port, worker capacity which will optimistically take decades to cultivate - generations in terms of expertise that can't be rushed. Or that a lot of the factories that moved out of China are Chinese owned so money and control is still tied to CPC. Or China might undercut ASEAN by setting up parallel manufacturing in Chinese influenced Africa. There's still the matter of automation. Shorterm, China is targeting to increase automation from 68 industrial robots per 10,000 employees (14th in the world) to 150/10,000 employees (9th). For reference, top4 is Korea 631 /Singapore 488 / Germany 309 / Japan 303. China is not stopping at 150 long term, their poor demographics lack of youth due to family planning means labour heavy manufacturing is on the way out, but automation will potentially enable China to retain all their manufacturing advantages in terms of logistics and expertise in long run. And once China learns to make advanced integrated circuits and airplane engines, maybe software, they'll more or less have no western dependencies.
latchkey 7y ago
I'm from the bay area and moved to Vietnam 3 years ago. I'm watching all of this happen in realtime. I've recently completed a 8500km motorbike trip around all of Vietnam, southern Cambodia and Northern Laos. In the south of Vietnam, HCMC, there is massive growth. Huge amounts of construction. The city is over populated and growing rapidly. Millions of kids work for $200 a month. In the north of Vietnam, there is many illegal roads being cut through the forests and jungles to ship things from China. I've ridden these same dirt roads on a motorbike and seen the trucks. Did you know that Vietnam is also building a wall between themselves and China? All over Vietnam, people are making babies in huge numbers. There is a lot of family pressure to do so. They may only have 100m people now, but every single shack and house has 2-3 babies in it. It will be very interesting to see what happens to all these humans over the next 20 years as this country grows at a rapid pace. Cities in the north like Hai Phong are expanding rapidly. It is a massive port city that does trade with China and elsewhere. There is a road leading to the airport where all the super wealthy old vietnamese guys spend their 'retired' days riding their bicycles. Anyone who thinks Vietnam is poor should see the absurd size of the mansions here. This is where Samsung has their factories. A massive car factory (Vinfast) was recently built here as well. In Cambodia and Laos, the Chinese are building a trade route directly through the two countries. Literally cutting a huge freeway and railroad from north to south. Buying up all the land and stripping it. Zero concern for the environment. Even cutting holes through mountains. In return, China Power is also building hydro dams, which are causing lakes to dry up and rivers to flood in the wet season. Google 'china Sihanouk' to see what's happening there. My guess is that if you look on a map, this will give China a great water route directly to Africa. Here is an example of the roadway: http://www.xinhuanet.com/english/2019-07/28/c_138264471.htm http://www.xinhuanet.com/english/2019-07/28/c_138264471.htm I feel like nobody is talking about this, but it is happening. I've seen it first hand. This tariff situation is making huge waves that will affect this whole planet. Edit: I just noticed the overhead image of the factory complex in Binh Duong. I've been to those same buildings!
- weq 7y ago
  Once u have used all all your resources - what else do u do? Enter a new market, under the guise of alturism, give that country cheap credit... and soon enough you have a new colony!
mtanski 7y ago
Who is starting, building these factories in Vietnam? Who is lending for capital projects and providing industrial expertise to local enterprises. I'll give you one hint, the name of that country starts with a C.
- freddie_mercury 7y ago
  Actually it doesn't start with C. China is #4 in FDI flows into Vietnam. Every factory I've been to here is South Korean.
contingencies 7y ago
Currently opening a nontrivial manufacturing facility in China. I've been flying to Vietnam at least once a month for the last 3 months. There are definitely people moving production there, eg. I know one guy for a German group moving factories from China to south Vietnam. We had a chat, and it turns out we're getting cheaper industrial facility leasing here in Zhuhai than they get outside of Ho Chi Minh City. Additionally, we have immediate access to the world's largest industrial supply chain, are only 1 hour from Hong Kong, Macau, Shenzhen, etc. and ~200 million people. Marginally higher cost of living, but it's not a bad deal. Less crazy motorcycle road deaths and more nature here. IMHO Vietnam's big draw versus China is cross-border transactional banking - that stuff's a hassle here. On balance we'll stay put, thanks.
- baybal2 7y ago
  Same for quite a few of our clients. Many companies were asking us for the "Vietnam option" lately, and are surprised when manufacturing in Vietnam comes out more expensive than in China even with tariffs, and usually results in them moving from a Chinese factory in China to Chinese factory in Vietnam that will still be ran by Chinese engineers, Chinese know-how and use Chinese parts. The thing is that labour is not a big part of manufacturing costs even even for fairly low value goods, and are truly microscopic for higher value electronics. 30 years of Chinese manufacturing already drove out nearly all labour intensive processes out for production of light industry goods. Chinese companies have moved to heavily mechanised manufacturing quite long ago. Unless somebody can master custom tooling making as well as Chinese companies, they are not going to catch up.
crimsonalucard 7y ago
Not even the US can match up with China. In terms of manufacturing China is the leader both in cost and tech.
- lightedman 7y ago
  You're joking, right? They only recently figured out how to make a proper ball-point pen.
runn1ng 7y ago
I live in Vietnam, people here say Trump’s Chinese tariffs have built many people’s new houses.
- roboys 7y ago
  China, I expect has a bigger picture view. Our small brain framing "Move Manufacturing Good", doesn't play out when you realize China is an Asian power, not just an isolated country. China's economy benefits from most business that enters the Asian continent, either directly or indirectly, and this "economic proximity" benefit only increases as they develop infrastructure (domestically and internationally) that streamlines trade.
SenHeng 7y ago
Low tech manufacturing isn't the only thing they're exporting. Japanese IT firms have been training offshore dev teams in Vietnam/Myanmar for ages and sometimes on-shoring those entire devs team back into Japan. Some of the larger companies even recruit directly in Vietnam.
esjeon 7y ago
Gosh, what a click-bait title. I guess this is a politically biased article, trying to attack Trump. It's not that I like the tariff nor the fight b/w the countries, but it's just that the title is straight wrong. "China Exodus" has been a thing for almost a decade, meaning that there has been good reasons to leave China other than that little tariff thingy. Rising labour costs, ever-increasing regulations, unexplained government actions, a large number of Chinese (copycat) competitors, government-backed industrial espionage, corruption, lack of justice, etc. It has been like this since mid 2000s, and many global corporations have either already moved their critical production lines or set up backups outside of China. Quitting is impossible? Nope. Totally possible and many have already done that since years ago. The actual problem is small businesses who can't afford to build new suitable production lines in a hurry. China is indeed the best factory right now, since it's almost a grab-and-go. But that doesn't mean it's going to be the best for everyone nor forever.
speedster8 7y ago
Can someone post the full article, as I don't have a WSJ account anymore. Thanks.

148 points by chmaynard 7y ago

This tariff situation is quickly becoming an amazing opportunity for developing countries. The labor shortages being talked about can only be resolved through higher wages, which means that the people at the bottom will get a cut of the new money. In the end the world will be a lot richer and the money will be in the hands of relatively livable countries like Vietnam. (The Vietnamese government is actually pretty good in terms of freedoms.) It's also politically preferable for the US to depend on a hundred small countries instead of one big competitor. It may also help cushion the next global recession, as each of these international markets will be less correlated with each other than one company in China is with another company in China. Chinese companies are very tightly integrated with the government's balance sheets, meaning that you can't diversify within China. If one company goes under that means the subsidies ran out, and that means all the other subsidies are running out, which means the economy is toast.

jbob2000 7y ago
It could backfire if China sees these smaller countries as a threat and moves to block them. Vietnam borders with China, no doubt they are as dependent on China as, say, Canada is with the US. I could see China saying "hey if you trade with the US, we're putting 20% on your exports to China"
- zhdc1 7y ago
  Wouldn't happen. The Vietnamese hate the Chinese more than the Chinese hate the US. It's more likely that the US eventually extends tariffs to other SE Asian countries. That said, I think the real story is companies preemptively shifting manufacturing out of SE Asia entirely in order to get ahead of the next wave of offshoring.
  - jbob2000 7y ago
    The fact that they hate each other lends even more credence to my theory - it’s that much easier to put tariffs on them. 25% of their imports and 14% of their exports are with China [1], China could definitely hurt Vietnam if they become too close with the US. [1] https://en.wikipedia.org/wiki/Economy_of_Vietnam https://en.wikipedia.org/wiki/Economy_of_Vietnam
    - seanmcdirmid 7y ago
      China would rather not play with fire here, the Vietnamese night invite the USA to establish a naval base or something if pushed too far, especially considering the current South China Sea contests. (Ironically a reversal of USA support for China during the sino Vietnam war)
      - ksec 7y ago
        I wonder what are the possibilities of that happening? It is sort of the indicator of how much Vietnamese hate China, by settling with US.
        zhdc1 7y ago
        It's unlikely. Chinese intervention in Korea and Vietnam was mainly about keeping US troops off of the Chinese boarder. China's invasion of Vietnam was also partially about limiting Soviet influence in that country.
- duxup 7y ago
  China and Vietnam historically haven't gotten along well anyway. And I'm not so sure how many Asian nations would go along with that whole situation. Would be a lot of doubling down there by China... and when / if THEY want to offshore some things, where do they go?
  - sooper 7y ago
    My understanding is that China is offshoring a lot of stuff to Africa. Wages are still lower there.
    - markus_zhang 7y ago
      China has been offshoring to SE since years ago too.
  - zhdc1 7y ago
    Africa like the poster above mentioned.
LeanderK 7y ago
> The Vietnamese government is actually pretty good in terms of freedoms. Wait, what? They recently kidnapped an ex-party member in germany. It was 2017 or so. I can't believe that a country which honors you freedom would do something like this.
- whatshisface 7y ago
  They are a one-party communist state and so are not nearly as good as America, but on the economic freedom index they are close to Hong Kong. Not the greatest country but better than some others where every industry is national (not just China). https://www.globalpropertyguide.com/Asia/Vietnam/economic-freedom-5-years https://www.globalpropertyguide.com/Asia/Vietnam/economic-fr...
  - sbuttgereit 7y ago
    The link you sent talked about changes in economic freedom... but barely made it clear what they are talking about or measuring. Nevermnind if a site dedicated to global property purchases is likely to be an authority on economic freedom. That site does however say where they get their data: the Heritage Foundation's Economic Freedom Index. So how does that source characterize Vietnam? "Mostly Unfree", 128 in their ranking of countries. And Hong Kong... "Free", 1 in their rankings... though we'll see how well that holds up over the next few years. So not so close to Hong Kong. Heritage goes on to say... "Background The Socialist Republic of Vietnam remains a Communist dictatorship characterized by repression of dissenting political views and the absence of civil liberties. Economic liberalization began in 1986 with doi moi (renovation) reforms to transition to a more industrial and market-based economy. Vietnam joined the World Trade Organization in 2007 and signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in 2018. Vietnam’s economic growth, based on tourism and manufactured exports, was among the world’s fastest during the decade-long tenure of former Prime Minister Nguyen Tan Dung. In 2016, Dung was forced out after losing election as General Secretary of the Communist Party of Vietnam. State-managed economic liberalization continues under the leadership of General Secretary Nguyen Phu Trong." So while they do say that things are getting better... they aren't exactly calling it Hong Kong just yet. https://www.heritage.org/index/ranking https://www.heritage.org/index/ranking
Steve44 7y ago
I'm currently in the food packaging industry and over the past few years we have been seeing manufacturing move from China to Vietnam and India. Likewise in Europe it’s moving from Poland out to Romania, Greece, and also Turkey. These decisions are largely based on manufacturing costs.
- ksec 7y ago
  Working in Food industry as well, do you have any web site that specialise in Food Packaging news?
  - Steve44 7y ago
    Have a look at a the trade association http://foodservicepackaging.org.uk/ http://foodservicepackaging.org.uk/ and also https://www.packagingnews.co.uk/ https://www.packagingnews.co.uk/ which covers other packaging but there is a fair amount of foodservice items covered.
shshehe 7y ago
You have no idea what vietnam is like. Someone capable of spewing such garbage with confidence has no credibility about anything
- remotecool 7y ago
  I do. I spend 3 months/year there. Cops are very corrupt and most people won’t even report traffic accidents. If you are a foreigner/non-vietnamese, many hospitals won’t even treat you. Abject poverty, aside from a couple of big cities. Some may like it because with a little money, you can get away with anything.
  - phonon 7y ago
    What areas do you recommend?
bduerst 7y ago
Which would be the case if the tariffs were China-only, but the current presidential administration is enacting tariffs on many other countries, like Mexico, Brazil, and S Korea. Also, the upcoming Regional Comprehensive Economic Partnership (RCEP) meeting in November could be used by China to unify most of APAC against the U.S. The U.S. TPP was a blocking move to prevent the RCEP, which in it's current form covers half the world's economy (India, China, and others). Negotiations for RCEP have been slow but with the U.S. now burning trade bridges with it's partners, we're probably going to see something interesting happen in November.
- dmix 7y ago
  I've never understood how Asian regional free trade agreements and China providing loans to developing countries is really a threat to the west. Why exactly should the World Bank and the US/Europe be the only top players in the game again? Has all the strings attached to that help really made the world a better place? As far as I'm concerned extreme poverty or simply poverty is enough of a goal to target. Attempting to forcefully push country's local politics and governance forward without solving the basic problems of quality of life and all of the luxuries that allow people to focus on less local problems affecting their lives directly, like what they are going to eat next, freeing people up to focus on government and community. That seems like an essential first step. Otherwise youre just mining the same small group of influential people already in those countries and expecting different outcomes. Not changing leadership or reducing corruption organically through education and the empowerment an influential middle class brings to politics.
  - panda88888 7y ago
    > I've never understood how Asian regional free trade agreements and China providing loans to developing countries is really a threat to the west. It’s a threat from the US perspective, in the US national interest. Currently, the US is the top dog internationally, both economically and politically. As China increases its influence especially in the Asia and Africa region via economic investment and, potentially, demonstration of military prowess, it necessarily means US influence in said region decreases. This decrease in soft power of US means it is more difficult for the US to push for US-friendly policy in said region/country, which is detrimental to the US national interest.
zaphirplane 7y ago
Where goes the money for the subsidy come from
est 7y ago
> It's also politically preferable for the US to depend on a hundred small countries instead of one big competitor FTA: The Chinese model of the past 20 years thrived on suppliers being close to each other, making production quicker, less expensive and more efficient. Now, as operations become more fragmented, they are threatening to raise costs, stretch delivery times and expose companies to multiple tax and labor regimes
mr_toad 7y ago
> In the end the world will be a lot richer Except for US consumers.
tryitnow 7y ago
I hope so. But I think this may only hold if firms think that these tariff disputes will be an ongoing thing, only then will they make capital expenditures in developing countries.

deleted 7y ago

[deleted]

mk_net_safer1 7y ago

capitalist has no motherland. where there is money, where is their motherland.

josephpmay 7y ago

1) For anyone wondering, yes, many of these companies would have the same (or worse) problems if they tried to manufacture in the US. Our domestic supply chains for a lot of industries have dried up (or never developed). US factories also usually have higher minimum quantities and take much longer to tool up. 2) I'm surprised the article didn't mention Africa at all. A lot of Chinese industrialists are investing in Africa, and I suspect that Chinese-style supply chains have a good chance of developing there. If I was looking for a country to for long-term manufacturing strategies right now, I'd be taking a hard look at African countries.

reaperducer 7y ago
Our domestic supply chains for a lot of industries have dried up (or never developed). You make it sound like supply chains are permanent, immutable things that can't be created and dismantled at will. It happens all the time. Yes, there are countries where an existing supply chain is an advantage. But those supply chains weren't always there. They were created when manufacturing demand arrived. The same thing can happen in the United States, Canada, Europe, Brazil, or pretty much any other company. It's happened before. It'll happen again. If I was looking for a country to for long-term manufacturing strategies right now, I'd be taking a hard look at African countries. Agreed. I read/heard somewhere the notion that Africa is tired of making plastic shoes for China, and wants to start moving toward electronics. Considering the labor availability, sea access, and mineral wealth available, I could see that happening.
ThrustVectoring 7y ago
The "natural" distribution of manufacturing capacity roughly mirrors the population distribution, and Africa is definitely under-provisioned in this respect. Respect for property rights and political stability is definitely a downside, though. The first industrialists that manage to build out after the last land war or socio-political upheaval are going to get some really nice returns, though.
- Haga 7y ago
  Respect for contracts Respect for time Nothing in Africa ever works long. People receive there earnings and quit the job for a week without warning.

Gustomaximus 7y ago

A big problem no-one seems to talk about is 'consistency'. This is undervalued variable to capital intensive business. All these supply and other issues are readily solvable with time/money but why would you when you don't know if these tariffs will double tomorrow, go away or stay as is for the next 6 years. Who will invest huge capital when a political whim seems likely to change the landscape at any point.

dirtyid 7y ago

It took China almost 30 years to cultivate economic development zones into the logistics chain to build the first iPhone. That kind of development can't be replicated in a few years, is likely out of reach for smaller nations (read anyone except India) or viable in a geographically distributed fashion. The problem isn't just moving factories but have a geographically centralized logistics chain where thousands of components are within hours of each other, supported by millions of specialized high skill labor, preferably with similar language proficiency, where new production can be rapidly iterated to meet market demands. A "small" country with 100 million people are not going train a large proportion off their entire population to fill football fields with tooling engineers and other specialists. It's just not demographically in their cards. And it's that level of centralized scale that enables China to manufacture high end electronics in the timescales that modern business cycles require. That's why all the outsourced electronics production so far are low end assembly in countries adjacent to China where components made in China (other than very high end IC) can be quickly shipped to them have locals can be trained to assemble processes that has been matured and figured out in China. If all Chinese manufacturing magically shifted across ASEAN countries, I don't think there would be the collective capability to organize logistically to produce and iterate a new annual Apple product launch - the entire Tim Cook screw anecdote. The nature of manufacturing has changed. Maybe India can replicate that, they are not starting from zero, but I don't know if Indian democracy can make the extremely unpopular changes Chinese state directed capitalism / SEZ went through. This isn't an issue that can be solved by funneling money / FDI, these things take much longer time than a few years and still can't replicate the advantages of Chinese scale on things where scale matters. There's a qualitative difference in different governance models ability to execute policy and realize capabilities. Distributing Chinese manufacturing among bunch of competing countries with inevitably expensive and inefficient physical and regulatory interconnects just won't produce the same capabilities. Even if we ignore the fact that countries like Vietnam are reaching infrastructure and labour limits, i.e. they literally at land, road, port, worker capacity which will optimistically take decades to cultivate - generations in terms of expertise that can't be rushed. Or that a lot of the factories that moved out of China are Chinese owned so money and control is still tied to CPC. Or China might undercut ASEAN by setting up parallel manufacturing in Chinese influenced Africa. There's still the matter of automation. Shorterm, China is targeting to increase automation from 68 industrial robots per 10,000 employees (14th in the world) to 150/10,000 employees (9th). For reference, top4 is Korea 631 /Singapore 488 / Germany 309 / Japan 303. China is not stopping at 150 long term, their poor demographics lack of youth due to family planning means labour heavy manufacturing is on the way out, but automation will potentially enable China to retain all their manufacturing advantages in terms of logistics and expertise in long run. And once China learns to make advanced integrated circuits and airplane engines, maybe software, they'll more or less have no western dependencies.

latchkey 7y ago

I'm from the bay area and moved to Vietnam 3 years ago. I'm watching all of this happen in realtime. I've recently completed a 8500km motorbike trip around all of Vietnam, southern Cambodia and Northern Laos. In the south of Vietnam, HCMC, there is massive growth. Huge amounts of construction. The city is over populated and growing rapidly. Millions of kids work for $200 a month. In the north of Vietnam, there is many illegal roads being cut through the forests and jungles to ship things from China. I've ridden these same dirt roads on a motorbike and seen the trucks. Did you know that Vietnam is also building a wall between themselves and China? All over Vietnam, people are making babies in huge numbers. There is a lot of family pressure to do so. They may only have 100m people now, but every single shack and house has 2-3 babies in it. It will be very interesting to see what happens to all these humans over the next 20 years as this country grows at a rapid pace. Cities in the north like Hai Phong are expanding rapidly. It is a massive port city that does trade with China and elsewhere. There is a road leading to the airport where all the super wealthy old vietnamese guys spend their 'retired' days riding their bicycles. Anyone who thinks Vietnam is poor should see the absurd size of the mansions here. This is where Samsung has their factories. A massive car factory (Vinfast) was recently built here as well. In Cambodia and Laos, the Chinese are building a trade route directly through the two countries. Literally cutting a huge freeway and railroad from north to south. Buying up all the land and stripping it. Zero concern for the environment. Even cutting holes through mountains. In return, China Power is also building hydro dams, which are causing lakes to dry up and rivers to flood in the wet season. Google 'china Sihanouk' to see what's happening there. My guess is that if you look on a map, this will give China a great water route directly to Africa. Here is an example of the roadway: http://www.xinhuanet.com/english/2019-07/28/c_138264471.htm http://www.xinhuanet.com/english/2019-07/28/c_138264471.htm I feel like nobody is talking about this, but it is happening. I've seen it first hand. This tariff situation is making huge waves that will affect this whole planet. Edit: I just noticed the overhead image of the factory complex in Binh Duong. I've been to those same buildings!

weq 7y ago
Once u have used all all your resources - what else do u do? Enter a new market, under the guise of alturism, give that country cheap credit... and soon enough you have a new colony!

mtanski 7y ago

Who is starting, building these factories in Vietnam? Who is lending for capital projects and providing industrial expertise to local enterprises. I'll give you one hint, the name of that country starts with a C.

freddie_mercury 7y ago
Actually it doesn't start with C. China is #4 in FDI flows into Vietnam. Every factory I've been to here is South Korean.

contingencies 7y ago

Currently opening a nontrivial manufacturing facility in China. I've been flying to Vietnam at least once a month for the last 3 months. There are definitely people moving production there, eg. I know one guy for a German group moving factories from China to south Vietnam. We had a chat, and it turns out we're getting cheaper industrial facility leasing here in Zhuhai than they get outside of Ho Chi Minh City. Additionally, we have immediate access to the world's largest industrial supply chain, are only 1 hour from Hong Kong, Macau, Shenzhen, etc. and ~200 million people. Marginally higher cost of living, but it's not a bad deal. Less crazy motorcycle road deaths and more nature here. IMHO Vietnam's big draw versus China is cross-border transactional banking - that stuff's a hassle here. On balance we'll stay put, thanks.

baybal2 7y ago
Same for quite a few of our clients. Many companies were asking us for the "Vietnam option" lately, and are surprised when manufacturing in Vietnam comes out more expensive than in China even with tariffs, and usually results in them moving from a Chinese factory in China to Chinese factory in Vietnam that will still be ran by Chinese engineers, Chinese know-how and use Chinese parts. The thing is that labour is not a big part of manufacturing costs even even for fairly low value goods, and are truly microscopic for higher value electronics. 30 years of Chinese manufacturing already drove out nearly all labour intensive processes out for production of light industry goods. Chinese companies have moved to heavily mechanised manufacturing quite long ago. Unless somebody can master custom tooling making as well as Chinese companies, they are not going to catch up.

crimsonalucard 7y ago

Not even the US can match up with China. In terms of manufacturing China is the leader both in cost and tech.

lightedman 7y ago
You're joking, right? They only recently figured out how to make a proper ball-point pen.

runn1ng 7y ago

I live in Vietnam, people here say Trump’s Chinese tariffs have built many people’s new houses.

roboys 7y ago
China, I expect has a bigger picture view. Our small brain framing "Move Manufacturing Good", doesn't play out when you realize China is an Asian power, not just an isolated country. China's economy benefits from most business that enters the Asian continent, either directly or indirectly, and this "economic proximity" benefit only increases as they develop infrastructure (domestically and internationally) that streamlines trade.

SenHeng 7y ago

Low tech manufacturing isn't the only thing they're exporting. Japanese IT firms have been training offshore dev teams in Vietnam/Myanmar for ages and sometimes on-shoring those entire devs team back into Japan. Some of the larger companies even recruit directly in Vietnam.

esjeon 7y ago

Gosh, what a click-bait title. I guess this is a politically biased article, trying to attack Trump. It's not that I like the tariff nor the fight b/w the countries, but it's just that the title is straight wrong. "China Exodus" has been a thing for almost a decade, meaning that there has been good reasons to leave China other than that little tariff thingy. Rising labour costs, ever-increasing regulations, unexplained government actions, a large number of Chinese (copycat) competitors, government-backed industrial espionage, corruption, lack of justice, etc. It has been like this since mid 2000s, and many global corporations have either already moved their critical production lines or set up backups outside of China. Quitting is impossible? Nope. Totally possible and many have already done that since years ago. The actual problem is small businesses who can't afford to build new suitable production lines in a hurry. China is indeed the best factory right now, since it's almost a grab-and-go. But that doesn't mean it's going to be the best for everyone nor forever.

speedster8 7y ago

Can someone post the full article, as I don't have a WSJ account anymore. Thanks.