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Supply chain advantages not weakened by trade dispute

China Daily Global | Updated: 2019-05-16 07:25

THE TRADE FRICTIONS with the United States make some worry that China will lose its advantages in industrial supply chains. The relocation of some enterprises to some other countries further aggravates these concerns. The 21st Century Business Herald comments:

The fears are unnecessary.

Apart from articles of everyday use, China's main exports to the US are electronic products, the major source of its trade surplus. The US hopes to use tariffs and an information security barrier to compel its electronics manufacturing enterprises to leave China.

The problem is trade with the US only accounts for 11 percent of China's foreign trade. And the country, with a population of 1.4 billion and a complete industrial structure, is not only a manufacturer, but also the world's largest market for automobiles, cellphones, computers, new energy vehicles and many other products.

Even if some electronics manufacturing enterprises relocated their production catering to the US market elsewhere, most enterprises in other industrial sectors will not be affected by the tariff hike.

In other words, the overlapping of identities of China as the world's major manufacturing house and largest consumer market constitutes the country's unique advantage in keeping the effects of the US trade aggression within a controllable range. The US administration has apparently overestimated the effects of its tariff campaigns.

Nor should it be forgotten that a considerable proportion of China's exports to the US are manufactured by US and other Western companies, and China's gain from these deals is rather small.

In other words, the US technology companies will bear the brunt of the tariffs in the first place. For instance, Apple, which mainly manufactures its products in China and exports them to the US, will find the additional 25 percent tariffs put its products in a much less competitive position in the US market.

And it is almost impossible for it to find so many workers in other developing countries as skilled and efficient as those in China. Nearly 400 enterprises in China are Apple suppliers. The complete supply chain is an important reason why foreign companies like to invest in China.

Apparently, these enterprises will not move with Apple to other countries, even if Apple left; instead they would soon compete for orders from Apple's competitors that will continue to stay in China and produce for the world.

Also, closing the door upon China's electronic products will directly delay the US entering the 5G era given Chinese enterprises' leading advantage in this field.

In fact, the main challenge to China's major industrial supply chains will not come from the US, but India, which has the potential to compete with China as both manufacturer and consumption market. It is not the US trade war tactics, but India's huge and younger population, that will change the global industrial landscape in the long run.

(China Daily Global 05/16/2019 page11)

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