[The Editors' Verdict] US-China Trade Conflict: ASEAN Gains the Biggest Windfall

[Jung Yushin, Dean of the Graduate School of Technology Management at Sogang University and Chairman of the China Capital Market Research Association] A representative symbol of the US-China trade war is the imposition of additional tariffs by the United States on China. As a result, US imports from China decreased by 16.2% compared to the previous year, while some countries gained a windfall benefit. The top beneficiary is Vietnam, which recorded an increase in exports to the US of $16.9 billion. Following are Mexico ($15.2 billion) and Taiwan ($8.2 billion). Next are South Korea ($3 billion), India ($1.6 billion), and the United Kingdom ($1.5 billion), but their scales are smaller.

Regionally, ASEAN stands out as the clear leader. Last year, the increase in US imports from ASEAN reached $21.7 billion. After Vietnam in first place, Malaysia ($1.5 billion) and Cambodia ($1.4 billion) ranked second and third, respectively.

Why is ASEAN's import substitution effect so significant? Experts identify ASEAN as the first priority export base to replace China for the US market, followed by South Asia countries such as India, Bangladesh, and Pakistan. This is because of advantages in convenient parts procurement from China, low labor costs, and established industrial infrastructure.

How much profit has ASEAN made? The country with the highest contribution to exports and GDP (Gross Domestic Product) is again Vietnam. Last year, the contribution rate of increased exports to the US was as high as 8.9%, and the GDP contribution was 6.4%. Cambodia ranked second with approximately 8.8% and 5.5%, respectively. Taiwan was third with 2.5% and 1.4%. Considering the relatively small economic sizes of Vietnam and Cambodia, the effect of relative export growth appears to have been even greater.

What about the effects by industry? Looking at the industry breakdown of the $87.8 billion decrease in imports from China due to additional tariffs, machinery accounts for $55.2 billion and non-machinery for $32.6 billion. The import substitution effect from other countries mostly appears in machinery (an increase of $45.4 billion), while it is almost nonexistent in non-machinery (a decrease of $0.5 billion). Examining machinery more specifically, import substitution effects outside China are clear in most general machinery and electrical equipment products such as computer devices and parts, wireless communication devices, and semiconductors. In non-machinery, imports of raw materials, chemical products, and steel decreased except for some consumer goods like clothing and furniture. The industry attributes this to both the effect of domestic production in the US and an overall decrease in demand, which led to a reduction in US imports.

What about the industry effects by country? Among the top three countries, Vietnam leads as the largest production base replacing China in machinery sectors such as semiconductors, wireless communication devices, and mobile phones, as well as consumer sectors like clothing, toys, and furniture. Mexico serves as a main US export base in computer processors, auto parts, and food products, while Taiwan is a key export base in computers, peripherals, and wireless communication devices. The Philippines is transitioning to an export base for computers, peripherals, and wireless communication devices; Malaysia and Thailand for semiconductors and other electronic components; Indonesia for wireless communication devices; and India, Bangladesh, and Cambodia for clothing and furniture items.

In summary, the effect of the US additional tariffs on China appears to be a process of replacing Chinese production, known as the "world's factory," not by discovering large-scale production bases like China, but by diversifying supply chains across various countries centered on ASEAN and South Asia according to comparative advantages by industry, thereby dispersing risks.

However, there are opinions that the substitution effect may be somewhat exaggerated. The main reason is the possibility of China's indirect exports. Indirect exports refer to cases where minimal processing is done in a third country for a short period and then exported under the third country's label. The US Wall Street Journal and Reuters have reported since 2018 on the possibility of China's indirect exports via Vietnam and Cambodia.

In any case, considering the escalating US-China conflict, rising labor costs in China, the medium- to long-term possibility of yuan appreciation, and the need for Chinese companies to respond to the Trans-Pacific Partnership (TPP), the decoupling of production bases from China and the resulting global supply chain restructuring are likely to accelerate further. This is the so-called "China+One" supply chain shift. For South Korea, whose export share to China is as high as one-quarter, meticulous scenario analysis and preparation of countermeasures are urgently needed.

Joo Yushin, Dean of the Graduate School of Technology Management at Sogang University and Chairman of the China Capital Market Research Association

This content was produced with the assistance of AI translation services.