This week, President Biden has raised tariffs on a range of Chinese imports as part of the United States’ long-standing effort to reshape global supply chains. With the U.S. leading the charge, the trade landscape in Asia is shifting, potentially moving away from China as the central player.
On Tuesday, May 14th, the Biden administration increased tariffs on a number of Chinese imported goods. The White House stated that the new measures affect products including steel and aluminum, semiconductors, batteries, critical minerals, solar panels, port cranes, and medical products.
Since 2018, successive U.S. administrations have initiated trade and technology wars with China, aiming to tackle non-market behaviors of the Chinese Communist Party and seeking to exclude China from high-tech supply chains.
Driven by geopolitical factors, Taiwan, as a key hub for advanced semiconductors, has seen rapid growth in exports to the U.S. Just last week, data released by Taiwanese authorities showed that in April this year, sales to the U.S. market surged by 81.6%, reaching a historic high. Taiwan’s exports to the U.S. in the first four months of 2024 hit a 24-year high, while trade with China continued to shrink to a 22-year low. Even when including Hong Kong, the proportion of trade with China has been declining.
This fluctuation is also seen among other Asian allies of the U.S., such as South Korea and Japan. Both these major Asian economies have experienced an increase in exports to the U.S. while seeing a decrease in exports to China.
As trade develops, investment flows are also changing, with global companies increasing investments in Southeast Asia, Mexico, and other regions to avoid U.S. tariffs on China. Taiwanese, South Korean, and Japanese companies are also setting up factories in the U.S. to tap into subsidies for high-tech industries.
This process is leading to the relocation of production facilities from China to more U.S.-friendly countries, accelerating the restructuring of global supply chains as advocated by officials in the Biden administration for “friendshore” and “nearshore outsourcing”.
Economist Trinh Nguyen from Natixis told Bloomberg, “This widespread phenomenon across the region reflects the U.S.-China trade and investment wars.”
“I believe this phenomenon will continue to accelerate,” she said.
Foreign enterprises are increasingly hesitant to expand in China. In a recent survey, only 13% of European companies operating in China stated that China was their top investment destination, less than half the figure from 2021.
At the same time, new investments from Japanese companies in China have been declining since 2021. A recent survey indicated that operations of Japanese companies in China are facing significant challenges, with around 50% of firms expecting a deterioration in China’s economy in 2024, an increase from 37% at the end of last year, and most firms not planning to increase investments.
With subsidies from the Chinese government, the electric vehicle industry in China has expanded rapidly, leading to significant overcapacity with over 200 electric vehicle manufacturers. Experts predict that many smaller companies may not survive. The intense price competition among Chinese carmakers has also prompted foreign manufacturers to reduce production and investment in China.
Following a sharp drop in sales volume, Hyundai Motor Group from South Korea has sold its factory in Chongqing at a loss. Mitsubishi Motors has decided to exit China, halting production there. Honda Motor Co. this week, facing declining sales, is seeking voluntary retirements, with around 1,700 employees already opting for voluntary retirement.
Taiwan has also significantly reduced its investments in China.
Export orders indicate that the U.S. remains the primary consumer market for Taiwan’s manufactured goods. Nevertheless, the processing stages often pass through China, but the latest data show that Taiwan’s exports are beginning to bypass China entirely. New investments from Taiwan in China have sharply decreased from a peak of $14.6 billion in 2010 to $3 billion last year.
These trends indicate that post-COVID-19 pandemic and the U.S.-China trade war initiated during the Trump presidency, global supply chains are rapidly restructuring.
Currently, Chinese companies are rapidly increasing investments in Southeast Asia and Mexico to skirt tariffs, hoping to maintain their position in the supply chain.
With more Chinese companies attempting to assemble and produce in third countries to avoid U.S. tariffs, including U.S. Commerce Secretary Gina Raimondo and U.S. Trade Representative Katherine Tai, many senior officials in the Biden administration have expressed close attention to this matter.
During a hearing on Wednesday, Secretary Raimondo informed U.S. senators that the Commerce Department is monitoring reports of Chinese manufacturers planning to assemble cars in Mexico to evade U.S. tariffs. She emphasized that every effort would be made to prevent Chinese companies from circumventing U.S. tariffs.
“We will do whatever it takes to ensure that China does not use Mexico as a way to evade these new tariffs,” Raimondo stated.