When the US sneezes, the world catches a cold. So when the US, led by capricious President Donald Trump, launches a trade war the entire globe risks catching pneumonia. While right now, Trump’s main target is China — he’s slapping a 10 per cent tariff on $200 billion in Chinese goods next week. But the fallout will be Asia-wide — in both bad and good ways. For India, opportunities are opening, but there are also bullets to be dodged.

Let’s start with China. It was at a crossroads even before Trump threw his trade googly. As the Middle Kingdom’s become increasingly prosperous and sought to move up the value-chain, making more valuable items like electronics, salaries have risen and that’s undermined the chief attraction for giant corporations looking for low-priced wage slaves. Also, rents in China’s top industrial zones have escalated, adding to costs.

For several years now, in fact, companies like Adidas have been cutting its production in China and it’s a similar story with Nike. Now, Trump’s punitive tariffs have come as a final blow for some US companies’ China operations. Toymaker Hasbro, for instance, which makes nearly three-quarters of its goods in China, says it’s shifting production elsewhere. Incidentally, over 90 per cent of toys sold in the US are made in China, US official data show. A range of other smaller companies are also scouring the globe for new sites where wages and rents are still cheap.

And other areas of the US-China trade relationship threaten to go pear-shaped like the sensitive hi-tech area. Some 40 per cent of Chinese exports to the US are hi-tech products, many made by subsidiaries of top American companies. Those who see China as an enemy at the global level say there's a security risk if ICT — information and communications technology — products are made there. And all the top US tech companies make a large percentage of their products or components in China.

Still, though, despite all the negative noise, China isn’t about to lose its status as the world’s factory anytime soon. When it comes to factory workers, China offers huge numbers like no other country. In 2014, China’s formal manufacturing sector was estimated to employ 120 million workers. More recent calculations reckon it’s closer to double that number.

In some ways that’s like India’s software-service giants which argue you might get great tech skills in places like Hungary or Lithuania, but you can’t get India’s employee numbers.

Vietnam scores

But as the threat of a trade war looms over Asia, there’s one country which has already been doing well at the expense of China and now stands to do even better. That’s Vietnam, reckoned to be where China was about 10-15 years ago. It’s also where India might have been if our ‘Make in India’ dream had ever actually unfolded.

Look at Adidas, which has cut production in China and now makes over 40 per cent of its shoes in Vietnam. Nike also uses Vietnam as a manufacturing base. Similarly, camera-maker Olympus shut its factory in Shenzhen earlier this year and has moved more production to Vietnam.

One company which presciently spotted Vietnam’s potential a long time ago was Korea’s Samsung. Samsung recently expanded in Noida and that’s now the largest mobile phone production facility globally. But Vietnam remains Samsung’s largest production centre overall.

In fact, Samsung accounted for a quarter of Vietnam’s exports last year. Other South Korean companies have also invested heavily in Vietnam. In the first quarter of this year, over 30 per cent of Vietnam’s foreign investment came from South Korea.

What’s behind Vietnam’s success? Well, geography plays well for Vietnam. It isn’t far from Korea and it’s also next door to China. So many Chinese companies are now looking at shifting production there to dodge US tariffs.

Whether it’s because of the threat of sanctions, Vietnam attracted over $11 billion in investment in the first six months of this year, up steeply from the year before. Vietnam has a population of 90 million so it can’t boast India’s huge market. But it’s got an educated and young workforce and global corporations love its political stability. At another level, Vietnam’s also the world’s second-largest producer of coffee after Brazil.

Focus on Indonesia

The other country getting a lot of attention from global investors even before Trump threw his trade-war spanner is Indonesia. Over 20 years ago, Indonesia was badly hit by the Asian Crisis. But today, it has a thriving economy though there are fears it might be stalled by a strengthening dollar.

It has a 250-million population and e-commerce is taking off. Also, it’s got inventive start-ups like Go-Jek which has a $1.3-billion valuation and over 200,000 motorcycle riders carrying everything from people to parcels around the country. Online Indonesian travel company Traveloka, meanwhile, has a $1-billion valuation. Amazon, which has been focussing mainly on India till now, is also looking at making a strong thrust in Indonesia.

India’s position

So where does India stack up in the US-Chinese trade crossfire? For companies like Amazon, Facebook and Google, India is still high on the charts and market numbers are starting to work in our favour, especially as smaller towns and cities turn into big buyers. But when it comes to manufacturing, India is just one of many possible destinations along with Malaysia, Bangladesh, Cambodia and even Sri Lanka. Malaysia is costlier but again has a more educated workforce that can produce better quality products.

The Confederation of Indian Industry, in a recent report, said US tariffs on Chinese products could make Indian machinery, electrical equipment, vehicles, transport parts and chemicals, among other items, more competitive in the US market — especially also with the rupee’s slide. Similarly, the hike in Chinese duties on some US goods may make Indian exports more competitive in the Chinese market.

Trump’s trade war is a work-in-progress and the November midterm elections could alter its course significantly. Many of his tariffs will obviously hit Made-in-China products manufactured for US heavyweights. Trump is pushing these US firms to take production back home but that’s a tactic that could backfire, especially since global supply chains crisscross in so many different ways, and US consumers may rebel at the higher retail prices that would ensue.

One thing’s certain for India. It used to be argued India could naturally prosper, thanks to its vast internal market. But that’s simply not true or the country would be already rich. India’s going to have to be nimble, innovative and quick-thinking in its response to this US-initiated global trade bust-up.

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