Tensions over supply-chain decoupling between the United States and China are set to be at the forefront of discussions at a high-profile expo this week, as the presidential re-election of Donald Trump adds a greater sense of urgency to China’s long-standing focus on stabilising its supply chain.
With the China International Supply Chain Expo (CISCE) kicking off in Beijing on Tuesday, Trump’s promised reinforcement of tariffs, export controls and sanctions threaten China’s supply-chain dominance, and the stakes are especially rising for industries heavily integrated into US-China trade.
There is little doubt that US-China supply chains will only become “elongated”, said Xu Tianchen, senior China economist with the Economist Intelligence Unit (EIU).
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“At a surface level, they are indeed decoupling, as China increasingly struggles to directly export final goods to the US,” Xu explained. “Yet, if we dig deeper, third countries are playing a more prominent role in sourcing Chinese inputs, processing locally and exporting final goods to the US.
“The content of ‘made in China’ may diminish, but that of ‘made by China’ – Chinese factories manufacturing in third party countries – will remain unshakeable.”
As the new round of US-China supply disruptions looms, the second CISCE, a state-backed event affirming China’s leading role in the global supply chain, has attracted more US participants, in an aim to explore how nations can adapt to the rapidly shifting global trade dynamics while ensuring stability in critical supply chains amid pressing challenges. It runs until Saturday.
Overseas exhibitors were slated to account for 32 per cent of the more than 700 participants at this year’s event, with US companies leading the pack, said Zhang Shaogang, vice-chairman of the China Council for the Promotion of International Trade, at a press conference last month.
Last year, overseas exhibitors accounted for 26 per cent of more than 500 participants at the inaugural expo, with US participants accounting for one-fifth of overseas exhibitors.
Meanwhile, the number of European and Japanese firms in attendance looks to be significantly larger this year compared with last year, according to Zhang.
Stakeholders and multinational corporations, as well as small to medium-sized enterprises, are said to be among the ranks of participants.
During his re-election campaign, Trump vowed to increase tariffs to as high as 60 per cent on China-made goods as part of a broader strategy to prioritise American industry and reduce reliance on foreign manufacturing – a core promise of his economic policy.
At the same time, US firms reliant on Chinese components face rising costs and supply-chain disruptions, and importers are likely to step up purchases in a bid to front-load shipments to avoid any potential impact from the tariffs, according to analysts, who expect that tariff headwinds may not be felt until the second half of next year.
During the US-China trade war launched by Trump in 2018 during his first presidential term, tariffs of 10-25 per cent were imposed on roughly US$360 billion worth of imports from China, including machinery, electronics, furniture and textiles.
China’s GDP growth slowed from 6.8 per cent in 2017 to around 6 per cent in 2019, partly due to the trade war’s effects.
The trade war has driven many Chinese manufacturers to relocate operations abroad, seeking to offset tariff pressures and hedge against risks. Countries such as Vietnam, Thailand and Mexico have become prominent alternatives.
Meanwhile, numerous multinational companies have embraced the “China plus one” strategy – maintaining a foothold in China while simultaneously building supply chains in other regions. This strategy aims to reduce dependence on China and enhance resilience against geopolitical disruptions.
China could pursue a game of “whack-a-mole” by rebuilding supply chains in third countries to circumvent tariffs, the EIU’s Xu said.
“The size and complexity of the supply chains will overwhelm US regulators as they seek to close the loopholes ... [while] US firms and consumers bear most of the cost of decoupling, which means higher operating costs for businesses and higher living costs for households.”
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