Manufacturing is a key part of many national economies. However, certain nations, such as China, are known for having significantly stronger manufacturing sectors than most countries. In recent years, however, China’s manufacturing sector has been declining due to rising labor costs, the ongoing trade war with America, and a trend towards high-tech manufacturing jobs. This means that many companies are searching for new countries to which they can move their low-skill and low-cost manufacturing.

Here is a list of the top four countries that are picking up China’s manufacturing slack and will be major manufacturing hubs in the near future.

1. India

India is a country that is largely known for its software creation and its call centers. However, manufacturing has been steadily increasing there recently, largely due to Prime Minister Narendra Modi’s recently launched “Make in India” program that is helping to attract a large amount of foreign interest. The goals of this program are to facilitate investment, foster innovation, enhance skill development, protect intellectual property, and build best-in-class manufacturing infrastructure.

This program is part of a larger strategy to make it easy to do business in the country. This strategy has advanced manufacturing so much in India that the country is projected to by one of the top five manufacturing hubs for the world by the end of 2020. India’s manufacturing sector is currently growing by about 8% per year. It is attracting luxury brands, smartphone makers, automobile companies, and many more to conduct manufacturing in the nation. India could very well be the next China.

2. Vietnam

Vietnam has one of the fastest merchandise exports growth rates of any Asian country. In fact, between 2005 and 2013, merchandise exports increased by 20%. Considering that many companies that once used China for manufacturing are seeking out cheaper and more reliable alternatives in Asia, Vietnam could benefit substantially.

Vietnam is close to China and also borders the South China Sea, which connects to the Pacific Ocean. This means that shipping from Vietnamese countries is extremely feasible. This is desirable for companies that want to manufacture products in Vietnam and then have the products shipped to places like the United States and Canada.

In addition to its good location, Vietnam’s government has also been working hard to make business conditions favorable in the nation. It has been doing this by providing universal healthcare and job skills training, improving education, and developing infrastructure. Vietnam also has a stable political climate, which is favorable for business. All of these factors mean that there is a very good chance that more and more companies will outsource manufacturing to Vietnamese companies in the coming years.

3. Indonesia

Indonesia’s manufacturing has been growing by five percent for the last few years. Manufacturing now makes up about 25 percent of the country’s GDP. Additionally, Indonesia’s population has been growing steadily in recent years as well. The country now has about 240 million people.

Indonesia currently has some major infrastructure issues and needs to its power stations and grid, water sanitation systems, roads, seaports, airports, and urban transportation. This is especially true now that Indonesia is seeing larger percentages of its citizens migrating to urban areas.

The government has started to invest hundreds of billions of dollars into infrastructure development. So, this is encouraging. But there is a lot of room for improvement. However, if Indonesia can fix its infrastructure issues, then even more companies could outsource manufacturing to this nation. The low cost of labor, proximity to the Pacific Ocean, and relatively stable political climate are all very attractive to companies who need manufacturing. All of these things mean that Indonesia could soon become another Asian powerhouse of manufacturing.

Competition with India and Vietnam will be strong, so the country has its work cut out for it. But considering vast quantities of companies, including Apple, Nintendo, and HP, are all looking to move at least part of their manufacturing out of China, Indonesia could be one of the key beneficiaries of this mass exodus. The protracted U.S./China trade war, tariffs, and China’s rising labor costs are forcing companies to seek manufacturing outside of China. Indonesia could be where many companies including large tech companies end up setting up new manufacturing operations.

4. Singapore

Despite the fact that Singapore is a small nation and is only about 31 miles wide at its widest point, the nation has a strong manufacturing sector that has continued to grow in recent years. In fact, during 2018, Singapore’s manufacturing sector grew by roughly ten percent. Manufacturing is Singapore’s fastest-growing business sector.

The product categories that are leading the manufacturing charge in Singapore are electronics, biomedical, and transport engineering. Other key reasons why Singapore’s manufacturing sector is increasing include the fact that the country has excellent infrastructure and is very stable politically. These factors help to make businesses feel comfortable launching manufacturing operations in the nation. The political stability of Singapore gives the country an advantage over places like Thailand, which is experiencing major political uncertainty at the moment.

Singapore is yet another Asian nation that could benefit from the decline of China’s manufacturing dominance. Singapore is somewhat limited by its size. However, many companies will most likely seek to conduct manufacturing in Singapore because of all the advantages it provides.

The manufacturing map will continue to change rapidly in the coming years

After decades of consistent growth and a meteoric rise to become the world’s biggest manufacturing powerhouse, China is starting to face a lot of difficulties in its manufacturing sector. Companies are fleeing the nation rapidly and are quickly seeking low-cost alternatives. India, Vietnam, Indonesia, and Singapore will all likely benefit tremendously from this situation and see continued manufacturing growth as a result.

However, as these nations see their manufacturing increase, they will most likely have to deal with many of the issues that China is facing right now, such as rampant pollution, increasing salaries, and potentially even protracted trade wars with the United States. China is going to be forced to adapt to the fact that it is becoming an increasingly unpopular place to manufacture goods. Meanwhile, India, Indonesia, Vietnam, and Singapore can all enjoy the fruits of their hard work and watch foreign investment continue and their manufacturing sectors to increase year after year as long as this trend continues.

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When looking at international trade as a whole, one of the several contributing factors that can lead to sudden fluctuations is political uncertainty, particularly between the world-leading superpowers. As the U.S. and China continue to apply new tariffs and impede trade with one another, we will be looking into their building trade war and how this is affecting international trade.

The impact on businesses

The U.S. and China trade war has been running on for a while now, with over 300 days’ worth of negotiations and increasing tariffs. But how has this affected business as a whole?

When you look at business in the U.S., as well as internationally, it is smaller self-made businesses that have taken the hit first. With many losing the money that they are putting into their businesses, small business owners are seeing an increase in costs without the increase in sales. Though this is not the case for every business, price increases are seeing some small business begin to struggle.

Changes to personal finances are affecting businesses too

In addition to the impact that the trade war is having on business directly, it is also important to note the indirect impacts on businesses as the personal finances of their customers are affected.

As trading tariffs continue to escalate, there can be a knock-on effect such as increased prices for necessities like fuel, as well as a wide variety of imported goods. As the price for necessities such as fuel continues to rise, economic growth can slow and many begin to struggle with their finances. While some consumers continue to spend with quickly approved same day loans or easy credit options, many consumers opt to put alternative saving techniques in place to ensure their ability to cover the rising prices without putting themselves in financial risk.

As prices increase and customers become more averse to spending, many businesses may find sales decreasing and costs increasing, a dangerous scenario for any business.

The hesitation to invest

With tariffs now set on $250 billion dollars of Chinese goods, with plans for more on an additional $300 billion of goods, and a tariff on $110 billion set on American goods, this tariff war has shown no sign of slowing down.

This has led many businesses to be hesitant to invest. As a result, there has been a drop in tech deals year to date compared to years past and is only set to decrease. This presents issues for tech giants such as Apple and Samsung, as their parts and phones are produced in China. As this political uncertainty continues to escalate, their stocks took a hit but soon recovered, However, this sharp fluctuation is leading many to hesitate when investing in certain markets.

Reduction in supply and demand

The final way that the U.S.-China trade deal is affecting international trade is the reduction in demand for many products. With China’s weak exports in the first half of 2019, this could mean problems for a number of their major trading partners, as the technology industry and other major fields will begin to feel the pinch. However, there has also been an 8.1% drop in exports from the United States, demonstrating a drop in the demand and the significant damage being done to both sides by this ongoing trade war.

As tariffs continue to rise and exports drop, a number of major companies will have to start to pay more. This has already started to take effect in the U.S. as the economy has begun to slow, affecting industries like construction, which relies on imported materials such as aluminium and steel. With technology expenses already on the rise, tariffs could further increase expenses and cause technology, fuel and other necessities to increase in price, and exacerbate the existing decrease in demand even more.

As this trade war continues with no deal in sight, this could have a profound effect on the global economy. Only time will tell whether this is set to improve or not following the next round of negotiations. Where will you start in adapting to this new economic reality?

The post How is the U.S.-China trade war affecting international trade? appeared first on Trade Ready.

A ruling from the U.S. Department of Commerce against Canadian-based airliner Bombardier issued Sept. 26 has raised concerns about American protectionism.

The ruling sparked harsh language from politicians in the UK, where the jets in question are manufactured, and Canada suggesting a coming aerospace trade war. The Commerce Department’s decision to levy a 220% tariff on Bombardier CS100 commercial jets clearly pits Trump’s “America First” manifesto against global free trade.

The claims against Bombardier

The aerospace trade conflict began when U.S.-based Boeing filed a claim with the U.S. Department of Commerce against Bombardier. Boeing claimed that a $1 billion infusion of money from the Canadian government in 2015 allowed Bombardier to strike an agreement to provide its C-series commercial jets to Detroit-based Delta at rates that were well below the cost of producing the jets. In its claim, Boeing also cited a commitment of $181 million from the U.K. government and Northern Ireland Executive for a new factory in Belfast where the wings for the C-series jets are manufactured.

International trade regulations prohibit subsidies of any kinds from governments that give businesses an unfair advantage in the international market. With that in mind, Boeing asked the U.S. Department of Commerce for an 80% tariff to equalize the U.S. aerospace market.

“Subsidies enabled Bombardier to dump its product into the U.S. market, harming aerospace workers in the United States and throughout Boeing’s global supply chain,” Boeing said in a public statement regarding the dispute.

(The complaint) has everything to do with maintaining a level playing field and ensuring that aerospace companies abide by trade agreements.

The backlash against the U.S. Department of Commerce ruling

Government leaders in the U.K. and Canada, and representatives from Bombardier were quick to criticize the ruling from the U.S. Department of Commerce.

“The magnitude of the proposed duty is absurd and divorced from the reality about the financing of multibillion-dollar aircraft programs,” Bombardier said via a public statement regarding the ruling.

U.S. trade laws were never intended to be used in this manner, and Boeing is seeking to use a skewed process to stifle competition.

The United States does, in fact, have an Agreement on Trade in Civil Aircraft with 31 countries including the Canada and the U.K. That agreement, which has been in place since 1980, prohibits import duties on all civilian aircrafts.

Previously, British Prime Minister Teresa May had appealed to Trump to encourage Boeing to drop its suit. Following the ruling, U.K. Defense Secretary Michael Fallon warned Boeing that its claims against Bombardier could “jeopardize” its ability to obtain defense contracts with the U.K.

Canadian Prime Minister Justin Trudeau threatened to cut any ties between Boeing and the Canadian government in response to the ruling.

“Certainly, we won’t deal with a company that’s attacking us and attacking thousands of Canadian jobs,” Trudeau said.

Long-term implications of the aerospace trade conflict

The dispute over aerospace trade is far from over. The case between Boeing and Bombardier isn’t expected to be settled before next spring, when the U.S. Department of Commerce is expected to issue a final ruling on whether Bombardier’s government funding allowed the company to sell commercial airliners below cost, providing Bombardier with an unfair advantage that harmed Delta.

Regardless of the final ruling, the Boeing-Bombardier dispute has stirred up trade conflict and concerns over Trump’s aggressive “America First” policies. In addition to creating harsh words from government leaders in the U.K. and Canada, the complaint by Boeing and the subsequent tariff have called into question the future of trade deals with the United States, as well as the U.K.’s ability to strike a post-Brexit trade deal with the U.S.

What do you think this ruling means for the future of the aerospace industry and trade within Canada, the United States, the UK, and around the world?

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