The Impact of Geopolitical Tensions on Import Export

The U.S.-China trade war, which started in early 2018, had profound effects on many industries across the globe. Under the leadership of President Donald Trump, the United States began by imposing tariffs on Chinese goods such as solar panels and washing machines. China retaliated by imposing tariffs on over 100 U.S. agricultural products, including soybeans, pork, and corn.

Although the United States Press Secretary downplayed the impact of this retaliation, soybean farmers, who had been heavily reliant on the Chinese market, were hit hard by the tariffs. China was the largest buyer of U.S. soybeans at the time, but as a result of the tariffs, the CCP began buying soybeans from other nations like Brazil. This caused a dramatic drop in soybean exports from the U.S. to China. U.S. farmers faced losses in revenue, with estimates suggesting that the U.S. soybean industry lost around $3 billion in exports to China in 2018.

This exchange of tariffs began escalating when the U.S. imposed tariffs on thousands of Chinese-made goods, including consumer electronics like smartphones and laptops. Apple, which relies heavily on Chinese manufacturing for products like iPhones and Apple Watches, faced the challenge of increased costs due to tariffs. While Apple attempted to absorb some of these costs, other companies in the tech space, such as Dell and HP, were also significantly impacted by tariff increases on Chinese-made laptops and components. As a result, some companies began shifting their production out of China to avoid the higher costs. For example, Dell and HP explored options to move production to countries like Vietnam and India.

The semiconductor industry faced a particularly challenging period during the U.S.-China trade war due to restrictions placed on the export of high-tech components. A key example is the situation involving Huawei, the Chinese telecom giant. In 2019, the U.S. government placed Huawei on an "Entity List," restricting American companies from selling technology and parts to the company. This included critical components like semiconductors from companies such as Qualcomm, Intel, and Broadcom.

Huawei, which had been one of the world's largest smartphone manufacturers, was heavily reliant on these American-made chips. The ban disrupted Huawei’s ability to manufacture smartphones and created a ripple effect throughout the global semiconductor supply chain.

In response, companies like TSMC (Taiwan Semiconductor Manufacturing Company), the world's largest contract semiconductor manufacturer, faced uncertainty regarding its relationship with Huawei. In the wake of these disruptions, Huawei began seeking alternative suppliers and increasing its investment in domestic semiconductor production, while TSMC and other semiconductor companies explored new markets to reduce their dependence on Chinese customers.

The automotive sector also felt the impact. The global shortage of semiconductors, exacerbated by geopolitical tensions and the pandemic, led to significant delays in car production. Ford and General Motors had to halt or scale back production of popular models due to the chip shortages. Ford’s plant in Michigan temporarily stopped producing the F-150, one of the company’s flagship trucks, due to the lack of chips, affecting millions of dollars in revenue.

As geopolitical risks increased, many companies began shifting their production bases to countries with lower labor costs and more favorable trade conditions. Vietnam became a primary destination for companies looking to move production out of China. For instance, Apple, which had long relied on Chinese manufacturers such as Foxconn for assembling iPhones, began moving part of its production to Vietnam to hedge against tariffs. Apple supplier Foxconn set up production lines in Vietnam, and Apple started shifting some iPhone production there as early as 2020.

Similarly, other tech giants, like Samsung, have increased their presence in Vietnam, with Samsung Electronics moving part of its smartphone production to the country. Samsung’s mobile phone production in Vietnam reached around 50% of its total global output in recent years.

India, with its large labor force and burgeoning infrastructure, has also attracted investment. For example, Samsung has invested heavily in building manufacturing plants in India, producing smartphones and televisions for the Indian market. Additionally, Walmart and Target are increasingly sourcing goods from countries like India, Vietnam, and Bangladesh to avoid tariffs on Chinese goods.

As countries sought to navigate the changing geopolitical landscape, trade agreements such as the U.S.-Mexico-Canada Agreement (USMCA) became increasingly important. The USMCA, which replaced the North American Free Trade Agreement (NAFTA), sought to modernize trade between the U.S., Canada, and Mexico, and address concerns like labor rights and intellectual property.

One prominent example of the USMCA’s impact was in the automotive industry. Under the new agreement, automakers must source a higher percentage of their car parts from within the region to avoid tariffs. The USMCA mandates that 75% of a vehicle's parts must be made in North America to qualify for tariff-free access to the U.S. market, up from the 62.5% required under NAFTA. This has led companies like General Motors and Ford to reconsider their supply chains. For example, GM has invested in new facilities in the U.S. to meet the regional content requirements of the USMCA, which is aimed at fostering more local manufacturing.

In addition, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a trade agreement that includes countries such as Japan, Australia, and Canada but excludes China. The agreement, which came into effect in 2018, serves as a counterbalance to China’s growing economic influence in the Asia-Pacific region. For instance, Vietnam has benefited significantly from the CPTPP, which has helped boost its exports, especially in textiles and electronics, by providing access to larger markets like Japan and Canada.

To cope with the challenges posed by trade tensions, companies have adopted various strategies. Diversifying supply chains and reshoring production have been key approaches. For example, Nike has been moving production to countries like Vietnam and Indonesia, and it has diversified its supply chain to reduce dependence on Chinese manufacturers. In 2020, Nike’s Chief Financial Officer stated that the company had shifted more than 50% of its production out of China to other countries.

Additionally, companies have strengthened local supply chains to reduce their exposure to global disruptions. Tesla provides an excellent example of this approach. As part of its strategy to become less reliant on global supply chains, Tesla has worked to source more components domestically, particularly in its Gigafactories in the U.S. and Europe. Tesla’s reliance on local suppliers for critical components like batteries has allowed the company to maintain a relatively steady supply of parts even when global supply chains face disruptions.

Furthermore, businesses are increasing their use of technology and automation to enhance supply chain resilience. Companies like Amazon have increasingly relied on automation in their warehouses to reduce reliance on labor, and 3D printing is becoming more common in sectors like aerospace and automotive. By using advanced technology, companies can reduce their dependence on complex global supply chains and increase flexibility in production.

The ongoing U.S.-China trade war, the semiconductor supply chain crisis, and the shifting of manufacturing bases to emerging markets like Vietnam and India all illustrate the complex interplay of geopolitics and global trade. By adapting to these challenges through diversification, reshoring, and leveraging technology, businesses are navigating a tumultuous landscape. With geopolitical tensions showing no sign of abating, the companies that will succeed in the coming years will be those that remain agile and responsive to these shifting dynamics. Real-world examples from major companies like Apple, General Motors, and Nike demonstrate the importance of strategic flexibility in a global economy increasingly shaped by geopolitical considerations.