China Faces Manufacturing Exodus as Trade War Takes It Toll

The ongoing trade war between the U.S. and China has had immense ramifications, as global economic growth has slowed. The U.S. and China, the two largest economies in the world, have not been spared from the economic fallout. Both countries have seen exports decline and the manufacturing sector contract, which has hurt economic growth.

The ‘Chinese miracle’ of tremendous economic expansion has slowed down since the trade war began in July of 2018, and China has been hit by a manufacturing exodus. The imposition of higher U.S. tariffs on Chinese goods has been a major factor, but rising labor costs and a complex regulatory environment have also led to manufacturers looking for greener and cheaper pastures.

How bad is the situation for China? Prior to the trade war, China was the largest trade partner of the United States. Currently, it has fallen behind Mexico and Canada and has fallen to third place. China’s export sector has been hard hit, as exports to the U.S. plunged by 20 percent in November on an annualized basis, and have fallen to their lowest level since March 2013. Meanwhile, the U.S. has been importing goods from countries which have played host to manufacturers that were formerly based in China. These include Vietnam, Thailand, Taiwan and Mexico, all of whom are delighted to welcome these companies.

There has been a lot of fanfare over the ‘Phase 1’ agreement between China and the U.S., which will be signed next week. However, the deal is limited in scope and is unlikely to sway manufacturers who are contemplating relocating outside of China. If the manufacturing exodus continues, China could experience a significant economic slowdown, which would have a negative impact on the global economy.