Why it matters: Global supply lines are entangled in China
The Trump administration is not only seeking what it calls fairer trade with Beijing, but much more — to upend the bedrock of the Chinese economy by forcing out the chain of manufacturing supply from the country, and pushing it elsewhere.
Why it matters: There are doubts about this end game of Trump's trade war. After decades of development and tens of millions of dollars of investment, few U.S. companies seem likely to move their manufacturing facilities out of China.
"It can’t be a replay of the Cold War division between the West and the Soviet Union — industries were nationally based back then and innovation wasn’t global. All this changed after 1990."— Jim Lewis of the Center for Strategic and International Studies
China has been the world's biggest exporter for almost two decades and has poured millions into its logistics network so global companies can quickly move goods from factories to cargo ships. China also has one of the best-trained manufacturing workforces in the world.
- U.S. companies can consider moving production from China to Cambodia, Malaysia, Vietnam or elsewhere — both to dodge tariffs and avoid the threat of intellectual property theft, But elsewhere, they face other disadvantages like dirt roads between factories and ports and inexperienced workers, the New York Times reports.
- And China has levers to make sure it isn't frozen out of global supply chains, Lewis says. For example, it could threaten to take away a foreign company's access to its massive market.
Yes, but: Some companies are at least putting a halt to new Chinese production capacity.
- Feng Tay Enterprises, a Taiwanese footwear manufacturer that services Nike and Adidas, stopped building up Chinese production over 10 years ago, per Nikkei Asian Review. It's now adding capacity in India and Southeast Asia.
- Foxconn, the iPhone and laptop maker, earned kudos from Washington for promising to bring a chunk of production to Wisconsin.
What to watch: If a few big names try to cut reliance on China — even if they don't move out entirely — President Xi Jinping could make concessions to avoid disrupting the interconnected supply chain.
- For now, that's unlikely to happen with Xi. "He’s overestimated China’s ability to make advanced technology without Western help, but it will take a while for him to admit this," Lewis says