US-China trade war: Asia’s winners and losers

Donald Trump’s appetite for tariffs shows no sign of fading. The American president recently slapped a 10% tariff on $200 billion worth of Chinese goods, with the rate set to rise to 25% next year. China quickly responded with $60 billion worth of levies on U.S. imports, including on American agricultural products.

Here we have compiled a list of Asian companies feeling the effects, both good and bad, as the trade war heats up.

TREND 1: MOVING OUT

The trade war has put the gas on a simmering trend: the relocation of production from China to other parts of the world.

The world’s No. 1 industrial PC maker said it will add final assembly lines in the state of Illinois and open more sales offices across the U.S.

Giant, the world’s largest bicycle maker, plans to expand production to Eastern Europe to diversify from China.

The Taiwanese gaming PC and motherboard maker plans to move part of its production in China back to Taiwan to avoid trade tensions.

The AirPod assembler said on Aug. 14 it will ship semifinished goods from Shanghai to other facilities outside of China for final assembly if the trade dispute continue escalates.

TREND 2: UNEXPECTED OPPORTUNITIES

The scramble to find suppliers outside of China is also producing winners. Tensions between the world’s two biggest economies are benefiting third countries in other ways, too.

Samsung Electronics

South Korea (Consumer electronics)

The trade war between the U.S. and China is sensitive issue to the company as they are its two largest markets. But Samsung has benefited in the U.S. telecom network thanks to U.S. sales restrictions on Chinese players Huawei and ZTE.

The chip design service provider and affiliate of Taiwan Semiconductor Manufacturing Co. said it has seen more interest from Chinese companies since trade tensions began to escalate.

“We notice this trend that more and more Chinese companies want to build their own customized chips and become self-reliant as soon as possible,” GUC President Ken Chen said.

President JY Hung said the trade war could help the Taiwanese chip packaging and testing company, which supplies global memory chipmakers Toshiba, Micron, Western Digital and Intel.

“We found our customers could place more orders with us rather than those [that] have more facilities in China,” Hung said. “We expect to gain more shares if the trade war continues to intensify.”

Chunghwa Precision Test Tech, a semiconductor testing company, may benefit from trade tensions, according to an industry insider, as customers like Huawei chip unit Hisilicon Technology could shift orders from U.S. suppliers to the Taiwanese company to minimize risks.

Eclat Textile, a leading apparel supplier to Nike, Adidas, Under Armour, Lululemon and many others, said it has received more inquiries from customers looking to place orders with the Taiwanese company to avoid risks of the trade war. Eclat completely ended production in China in late 2016.

Olam International

Singapore (Food)

The agribusiness conglomerate increased almond shipments from Australia to China to “the highest levels” in the first half of 2018 after Beijing imposed tariffs on U.S. agricultural products. Olam also significantly boosted soybean shipments from Brazil to China.

The world’s largest aluminum roller was able to buy American aluminum processor Aleris for $2.6 billion in July after the Committee on Foreign Investment rejected an prior agreement between Aleris and China Zhongwang Holdings.

India’s largest steelmaker will invest up to $500 million to build a steel plant in Ohio rather than expanding its production capacity in India. The decision followed another $500 million investment decision into a Texas plant in March.

“The Trump administration was the driver behind giving us in the U.S. the ability to compete for capital,” JSW Steel USA CEO John Hritz said in June.

Kerry Logistics Network

Hong Kong (Logistics)

The company, which helps companies with logistics, international freight forwarding, and supply chain solutions, is benefiting from the accelerating shift in production away from China. Companies that make electronics, apparel, household items, toys and other products are moving from the mainland, in part to avoid tariffs. “The U.S. buyers are asking for a solution. Otherwise, they have to pay the tariff,” said Group Managing Director William Ma Wing-kai.

The company’s turnover for the first half of the year increased by 27% to 17.46 billion Hong Kong dollars ($2.22 billion), while its net profit jumped by 20% to $948 million.

TREND 3: A DIRECT HIT

For some companies, the added cost of the tariffs is already — or may soon be — a headache.

Swire operates Coca-Cola bottling franchises in China, the U.S. and elsewhere, which could be hit by the U.S. tariff on aluminum imports. Michelle Low Mei-shuen, finance director, said the company does not expect any “significant impact” this year, but after that it is “uncertain how it will turn out.”

Zhongsheng Group operates import car dealerships in China, and though it does not deal in American autos, Chairman and Co-founder Huang Yi said that Mercedes- and BMW-brand SUVs made in the U.S. will be caught up in the trade war, and import tariffs will be higher.

“The first wave of the $34 billion tariff imposition from the U.S. has already affected Delta,” Chairman Yancey Hai said on July 31. The company, which supplies power components for Apple’s iPhones and MacBooks, said it will acquire associate Delta Electronics (Thailand) to access the latter’s manufacturing bases in Thailand, India and Slovakia to avoid U.S. tariffs.

According to Toyota, higher U.S. auto tariffs would add about $6,000 to the cost of each car. If exports from Japan are unchanged from last year at 700,000 units, this would amount to $4.2 billion. To counter growing protectionism and uncertainty in the U.S., Toyota plans to increase output in China by 20%.

Toyota also said in March that U.S. tariffs on imported steel and aluminum would raise costs and prices of cars and trucks sold in America.

The impact of trade tensions has been “significant in every regard,” said Kenneth Sullivan, president and CEO of pork producer Smithfield, which is owned by Chinese meat and food processor WH Group. Increased tariffs on U.S. agricultural products have hindered the group’s pork exports to China, where the meat is processed into packaged products.

TREND 4: INDIRECT IMPACTS

For many, it is the uncertainty and potential for an overall slowdown in growth that is the big concern.

“The impact is not that large, as our main operations are in routes to Japan, South Korea, Taiwan and Europe,” Chairman Su Xingang said on Aug. 10, but added that if growth suffers due to trade tensions so will the transport sector. “Our industry does not wish for a trade war. Trade war is a lose-lose situation.”

“The volatile currency exchange makes Asustek extremely difficult to quote retail prices in local markets,” Asustek Chief Financial Officer Nick Wu told investors on Aug. 10. “The trade uncertainty also dims the market demand for consumer electronics goods.”

“The tariff imposition under Section 301 [of the U.S. Trade Act] is the biggest uncertainty for the remainder of this year,” Pegatron CEO S.J. Liao said on Aug. 9.

The iPhone assembler warned that the trade war could dampen demand for new iPhones and said it is considering expanding its output outside of China if the situation worsens.

The MacBook and Apple Watch supplier is considering adding capacity in the U.S., Germany or Taiwan if U.S. tariffs are expanded to include such Chinese-made products as servers, smartwatches, smart speakers and other products the company makes.

Chairman John Slosar said Cathay is “keeping a close eye on things, especially how tariffs and currency movements could impact demand for travel, and our revenues and cost.” The impact may not be apparent at the moment, he added, but “there’s no doubt that the potential impact on our businesses could be significant.”

Hyundai Motor
South Korea (Cars)

The trade war is creating foreign exchange fluctuations in emerging markets, posing uncertainty for the automaker’s sales in Brazil, India and Russia.

The world’s sixth-largest tire manufacturer expects net profit to fall 8% this year, down from an earlier forecast of a 2% increase.

“The U.S. economy is expected to keep growing, but it may strengthen its protectionist attitude,” President and CEO Ikuji Ikeda said.

InterGlobe, which operates IndiGo, the country’s top airline by number of passengers, saw its net profit for April-June quarter almost disappear despite higher quarterly revenue.

Co-founder and interim chief executive Rahul Bhatia blamed the profit plunge on global market turbulence, which hit the company via a weaker rupee and higher fuel prices.

CEO Sazali Hamzah said escalating trade tensions could hurt China’s industrial growth in the long term, and eventually affect the regional petrochemicals industry. China accounts for about 16% of the group’s sales volume.

“So far, our customers in China are still actively pursuing strategic collaboration with us,” Hamzah said, but “effects from the trade war could impact our whole region.”