The Economic Repercussions of Trade War (Part 2)

 I received a short comment on the trade war between US and China from Professor Dr Ling Siew Ching in a WhatsApp chat. Here's what she wrote in pink: 

" I think there will be a drastic shift in the global market more for the benefit of SE East Asian countries like Vietnam, Malaysia and less for Cambodia who would rely on Chinese goods than Americans even if US tariff is lower for these countries"  

Actually I have already written some of my thoughts on this current economic tension between the US and China here: 

The Consequences of Trade War Between the  US and China 

https://scientificlogic.blogspot.com/2025/04/the-consequences-in-trade-war-between.html

But since Prof Ling wrote briefly and separately, let me further my thoughts to comment on hers about this economic issues a bit further so that it can reach a much wider audience  

The ongoing trade war between the US and China has a range of short-term and long-term consequences that impact both countries and the global economy.

For the US there will be higher consumer prices. Tariffs on Chinese goods often lead to higher prices for US consumers, especially on electronics, clothing, and everyday products.  There will be strained supply chains when many US companies rely on Chinese components or manufacturing. Tariffs and restrictions can disrupt operations and increase costs. There will be impact on farmers and exporters in that China has retaliated with tariffs on US agricultural goods, hurting American farmers and exporters who rely on the Chinese market.

There will be inflation pressure when combined with supply chain issues, tariffs contribute to inflation, putting pressure on the Federal Reserve and monetary policy.

For China there will be a slower economic growth with reduced access to US markets  and technology. This has slowed China’s economic momentum, especially in manufacturing and tech sectors. There will be a shift in global supply chains. Companies are moving production out of China to avoid tariffs, which could lead to job losses and reduced foreign investment.

China will set for increased self-reliance by accelerating efforts to become more self-sufficient in key sectors like semiconductors and artificial intelligence.

In term of global consequences as I see it, this will create market uncertainty. Trade tensions create volatility in global markets, discouraging investment and slowing global growth. I expect some reorganization of trade routes when countries like Vietnam, India, and Mexico benefit as companies diversify away from China, reshaping global trade patterns. But I think Malaysia may benefit when Malaysia buys from China especially during the recent visit of President Xi Jinping visit to Malaysia. Maybe even Vietnam may follow suit 

But I think there will be potential for long-term decoupling if tensions continue.  The world could see a split into separate economic and technological spheres dominated by the US and China respectively.

Xi Jinping's outreach to countries like Vietnam, Malaysia, and Cambodia ties directly into the strategic realignment caused by the US-China trade war. These countries are increasingly becoming key players in global supply chains

I think here's how they stand to benefit, Vietnam, Malaysia, and Cambodia, and how that might affect the US. 

My belief and feeling is, I expect a shift in supply chains. As US companies seek alternatives to Chinese manufacturing, Vietnam and Malaysia in particular have become attractive due to their skilled labor force, proximity to China, and improving infrastructure. Cambodia, while less developed, offers ultra-low labor costs for garment and textile production.

There may be an increased foreign direct investment (FDI). As far as I could follow, multinational corporations are investing heavily in Southeast Asia to hedge against tariffs and political risks. Vietnam, for instance, has seen a boom in electronics manufacturing (Samsung, Apple suppliers, etc.). I expect trade diversification when these countries are increasingly signing trade deals with both China and the US, giving them more leverage and access to global markets. Malaysia for instance has  signed 31 MOU (memorandum of understanding) with China during the recent State visit of President Xi to Malaysia. Maybe not all the MOU were on trade  

President Xi visit will enhance diplomatic and economic leverage His  visit signals China’s intent to deepen economic ties through initiatives like the Belt and Road or RCEP, offering infrastructure, loans, and trade opportunities that can help these countries grow rapidly.

The trade war I think and believe will have a reciprocal impact on the US:

While companies may move out of China, production costs in Southeast Asia are still often higher or come with quality/infrastructure challenges. That cost may still pass on to US consumers. In short there will be an increased cost for US consumers. Then as I can see, we can expect strategic realignment. US influence may wane in countries growing closer to China economically, particularly if China becomes a dominant investor in their infrastructure and energy sectors.

In economics where I do have some postgraduate training in London, we can expect resilient but fragmented supply chains. The US may benefit from a more diverse global supply network, but managing multiple smaller, less mature markets can be more complex and fragile compared to dealing with China alone. This trade war will result in geopolitical tension. As China strengthens its ties with Southeast Asia, the US might respond by increasing its own diplomatic and economic engagement in the region, thus potentially escalating a new competition for influence.

Based on what I could follow and can understand,  Southeast Asian nations are benefiting as "winners" of the trade war by becoming new manufacturing hubs. The US benefits from diversified supply chains but risks higher costs and diminishing influence if China fills the gap too effectively.

To sum up, I don't think trade  wars will benefit global market collectively. Some countries may benefit, some are losers. We cannot expect to have the cake and eat it at the same time - do we?