NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, October 8, 2019

By Irene Yuan Sun

Vietnam seems to be the consensus pick for winner of the U.S.-China trade war, as Chinese and other manufacturers shift production to the cheaper Southeast Asian nation. If there’s a loser, at least in terms of missed opportunities, it may be the countries of South Asia.

To understand why, remember that the trade war has only accelerated an important trend a decade in the making. Faced with rising costs, Chinese manufacturers must decide whether to invest in labor-saving automation technologies or to relocate. Those choosing the latter present an enormous opportunity for less-developed countries, as Chinese companies can help spark industrialization and much-needed economic transformation in their new homes.

There may not be another such chance this generation. The only proven pathway to long-lasting, broad-based prosperity has been to build a manufacturing sector linked to global value chains, which raises productivity levels and creates knock-on jobs across the whole economy. This was how most rich nations, not to mention China itself, lifted themselves out of poverty.

Photo courtesy of faungg’s photos.