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The trade war between the US and China has caused manufacturing companies to shift operations from China to Southeast Asia, resulting in an investment boom in the region. This can be attributed to the region taking up the role as an alternative base for firms that are looking to avoid levies such as the one-third of more than 430 American companies in China that have or are currently considering shifting production sites abroad amid trade war tensions.

In the first nine months of 2018 alone, Vietnam’s manufacturing inflows have increased by 18 percent. And according to Maybank, this is due to investment inflows such as a US$1.2 billion polypropylene production project by South Korea’s Hyosung Corp.

For Thailand, the country’s net FDI has increased by 53 percent compared to last year and reached US$7.6 billion. Manufacturing inflows to the country has also rose by approximately five folds of what it used to be and the same trend can be observed in the Philippines whereby the net FDI into manufacturing has risen to US$861 million in the same period from US$144 million in the previous year.

Maybank economists Chua Hak Bin and Lee Ju Ye have stated that, “the US-China trade war may be attracting more firms to set up in Asean to circumvent the tariffs,” and both have added that, “sectors such as consumer products, industrial, technology & telecom hardware, automotive and chemicals have indicated interest in Southeast Asia.”

Trinh Nguyen, a senior economist at Natixis Asia Ltd in Hong Kong has also stated that, “Southeast Asia serves both as a great growth market, a place to offshore thanks to lower costs of production and liberalization of trade, as well as a source of mitigation from geopolitical risks.”

However, despite the inflows of FDI due to the trade war, Southeast Asia has also experienced setbacks as in the case of Thailand whereby exports experienced a slump in September.

In accordance to Maybank, companies that intend to relocate or intensify productions in Southeast Asia are:

  1. Harley Davidson Inc: The company has shifted part of its motorcyclemanufacturing to Thailand
  2. Panasonic Corp. Electronics: The companyhas shutdown its US plant in early 2017 and switched to consignment production and exports from Malaysia
  3. Kayamatics: The company’sInternet of Things devices are currently being manufactured by two Chinese factories there are plans to set up production facilities in Kuala Lumpur and Penang in Malaysia
  4. Delta Electronics Inc.: The company is a supplier of power components to Apple Inc. And has offered US$2.1 billion in July to purchase a Thai affiliate in order to grow production.
  5. Merry Electronics Co.: The companyproduces headphones for firms like Bose Corp. and intends to shift some of its productions to Thailand from southern China.

 

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