Coronavirus Exposes Dependency of Southeast Asia’s Manufacturers on China

Southeast Asian manufacturers hoped the U.S.-China trade war would elevate their position as a global production hub, at the expense of their giant neighbor to the north. But the spread of the coronavirus has brought home the extent to which their fortunes are tightly intertwined with those of China.

The United States and China called a truce with a “Phase 1” deal in early 2020, but the trade war persists as many tariffs have remained in place. On the face of it, Southeast Asian countries are the clear winners of the protracted conflict between the world’s two largest economies. In 2019, U.S. imports from China dropped by 16% ($87 billion) in response to a raft of tariffs imposed on Chinese goods. Yet overall, imports only dropped by 1.7%, meaning that U.S. business lost by China was being picked up elsewhere.

The biggest gainers? Cambodia and Vietnam, from where U.S. imports grew on an annual basis by 38% ($5.9 billion) and 36% ($17.5 billion), respectively. Southeast Asian countries have long been an extension of a “China, Plus One” strategy where manufacturers diversified the risks of establishing core production in China by maintaining a base in at least one other country. As the trade war ratcheted up, many companies leaned into the “Plus One” aspect of their operations or began the process of reconfiguring supply chains to reduce the pain of exporting from China.

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