Response to the measure: China may shift business to Southeast Asia due to US duties

To circumvent US duties, China may move its production to Asian and African countries, according to experts interviewed by Izvestia. Such a scenario is quite likely if a new round of trade war escalates, which is quite realistic. In response to Trump's 10% tariffs, China imposed duties of 15% on American coal and liquefied natural gas (LNG) and 10% on crude oil, agricultural machinery and transport from February 10. The leaders of Canada and Mexico, against whom regulations have also been tightened, had the previous day secured a freeze - but China is probably not ready to compromise yet. The looming trade conflict has the potential to be the biggest in at least a decade, and possibly much longer.

China has responded to Trump's tariffs

The Chinese authorities did not wait long and already on February 4 reacted to the duties imposed by Donald Trump - from that date, 10 percent tariffs on all Chinese products came into force. Beijing announced that from February 10, coal and liquefied natural gas from the U.S. will be subject to 15% duties, while oil and agricultural equipment will be subject to 10% duties.

In addition, Beijing introduced export control (when selling products from China abroad) for supplies of rare metals (tungsten, bismuth), which are used to create weapons and semiconductors - most of the world market for these raw materials falls on China.

So far, the actions of the republic's authorities look decisive. However, it is possible that the leaders of China and the United States will hold a telephone conversation and freeze the imposition of duties, as it was done by the leadership of Mexico and Canada. On the other hand, if there is an escalation, the states could raise duties up to 60% - this is the figure that Trump initially named.

Mutual duties between Beijing and Washington are not the first round of trade war between China and the US. In 2018, America imposed tariffs of 25% on steel and 10% on aluminum. And China imposed duties on 128 American goods - 120 of them at 15% and the rest at 25%. Both countries later expanded the list. Although an agreement was signed in January 2020 to stop further tariff increases, those already imposed remained in place. The US duties affected about 18% of its total imports (2.6% of GDP), while China's retaliatory measures covered 11% of its incoming goods (3.6% of GDP).

In order to circumvent the new "Trump" tariffs, China, in turn, may move part of its production to Southeast Asian countries, in particular, to Vietnam, Cambodia, Malaysia, Myanmar, and Africa, experts interviewed by Izvestia believe.

- China actively used the practice of moving production to other states back in the period of the first trade war with the United States, which began in 2018. At that time, companies moved from China to Vietnam, Mexico, and Thailand," Olga Belenkaya, Head of Macroeconomic Analysis at Finam, recalled.

China can indeed relocate part of its production to such countries as Vietnam, Bangladesh, Cambodia, Myanmar, agrees independent expert Andrei Barkhota. This will make it possible to pass off Chinese goods as products of these countries, and thus not to pay duties. But, on the other hand, such actions will require additional expenses, the decision on which the Chinese take a long time - and they can hit the republic's business quite painfully.

At the same time, nothing prevents Trump from imposing similar duties on goods from these countries, said Andrei Barkhota. Now the Mexican "loophole" is probably closing, emphasized Olga Belenkaya. But Chinese business may continue to move production to Asian and African countries in case of increased tariff pressure, she said.

However, Natalia Milchakova, a leading analyst of Freedom Finance Global, reminded that China has already opened its production facilities all over the world, including in developed countries. Chinese companies have been present in the United States since 2004. This means that the process may simply intensify, but a global restructuring of trade flows is unlikely.

Who can emerge victorious in the tariff war between China and the US

Natalia Milchakova believes that the United States itself will suffer more from the new round of the trade war than China. The PRC acts as a monopolist on a global scale in the production of components and raw materials for electric cars (lithium is required here), smartphones (a group of rare earth metals), solar power plants (panels). At the same time, the U.S. has imposed duties on all supplies, including these important items. As a result, the price of goods, the components of which will now cost more due to tariffs, may rise in the country.

The American economy will also suffer losses from retaliatory measures due to the increased cost of imported goods, raw materials and components, believes Olga Belenkaya. The American consumer will pay for the "successes in the trade war" - inflation may spiral even more and will not allow the Fed to ease monetary policy. In December 2024, price growth in the U.S. amounted to 2.9% - the Fed calls this level high.

At the same time, China can easily refuse to supply American LNG, increasing the volume of fuel imported from Russia, as well as pipeline gas through the "Siberia Power Grid", so Russia will only benefit from this, said Natalia Milchakova.

On the other hand, the economic situation in China is not the most stable now. The country is weakened by a long crisis in the housing market, weak consumer demand and the accumulation of government debt in the post-pandemic period, said Olga Belenkaya. Therefore, the tariffs may create an additional burden on the budget.

In addition, the possibility of Trump implementing duties of 60% on Chinese goods has not gone anywhere, said Alexander Ignatov, a senior researcher at the Center for Research on International Institutions of the Institute of Applied Economic Research of the Presidential Academy. He added: such radical measures would require broad support inside the United States and could hit American businesses, given their dependence on Chinese production facilities and markets.

How the US-China trade conflict will change the global economy

Evgeny Smirnov, head of the Department of World Economy and International Economic Relations at the State University of Management, believes that all countries - China, the US and third countries - will bear the costs of the trade conflict associated with the need to restructure global supply chains.

According to Natalia Milchakova, it is possible that African states, poor countries of Central and Southeast Asia, Latin America, which depend on Chinese loans and investments, will suffer, as China may start saving money and postpone indefinitely any important projects abroad, in addition to those that they vitally need to develop.

- The world economy, which since the middle of the 20th century has been virtually built on the hegemony of the US dollar sooner or later has to change the model - this is already happening. Most likely, in the long term, globalization will be replaced by regionalization - that is, world trade and investment activity will be concentrated around several major economic and financial centers," believes Natalia Milchakova.

Economic fragmentation is already happening. And although right now, according to Olga Belenkaya of Finam, we should not expect the world trade to split into two poles, this process will accelerate if a tariff war develops.