The winner of a U.S.-China trade war could be … Mexico

Trump, Xi
REUTERS/Damir Sagolj
No matter how much power they think they have to shape their countries’ economic relationship, there are a lot of important things well beyond the control of either President Trump or Chinese President Xi Jinping.

If and when the United States and China finally tire of their trade war and reach a settlement to roll back tariffs, there still will be areas of friction making for an uneasy relationship, among them geopolitics, dominance in high-tech and human rights — if the U.S. cares about such things anymore.

But regardless of how the trade dispute gets solved, it’s being fought in a changing environment. No matter how much power they think they have to shape their countries’ economic relationship, there are a lot of important things well beyond the control of either President Trump or Chinese President Xi Jinping.

You could probably name a dozen. Here are two. Regardless of what Trump’s tariff cheerleaders say, don’t expect a more level playing field to result in a lot of new American jobs; nor for China to suddenly start buying loads of American soybeans again. Jobs already are heading elsewhere — to places like Mexico. And in addition to stiff competition, soybean sales are likely to remain depressed, in part because of a deadly disease ravaging China’s hog farms.

For a number of years already, increasing costs in China have resulted in manufacturing moving elsewhere. One of the main drivers is wages, which have increased as China has run out of cheap labor from the countryside. Sometimes the workers just aren’t there. After decades of ruthlessly enforcing a one-child policy, China is trying to encourage couples to have more children — but they’re not. So manufacturers have to increase wages to compete for a shrinking number of workers.

As one Chinese official said, the country’s working population shrank by 25 million in a five-year period this decade — that’s as if all of Australia just disappeared from the labor force. And one business owner reports increasing wages 15 percent or even 30 percent a year to attract and keep key personnel.

China still is a manufacturing powerhouse, with a lot of great expertise and infrastructure. (Fun fact for those who think the U.S. doesn’t make anything anymore: the U.S. is the world’s No. 2 manufacturer by value, with 18 percent of global output compared to China’s 20 percent.) But labor-intensive manufacturing in particular has been heading out of China to cheaper places like Indonesia, Malaysia, the Philippines,  Vietnam and Mexico. One study found that five years ago, Mexico already was a less-expensive place to make things than China.

The trade dispute is simply encouraging that trend, as businesses look for ways to avoid the tariffs. Some U.S. companies are relocating facilities to Mexico, but so too are Chinese businesses, and Mexico’s exports to the U.S. increased by 10 percent last year.

Regardless of how this trade dispute plays out, China’s labor market and demographic challenges will remain. But it’s Mexico and other countries that will see the biggest benefits.

As for disease, African swine fever is a truly horrific one. It was discovered in China, by far the world’s largest pork producer, last August and has spread rapidly, reaching most of China as well as Mongolia, Vietnam and Cambodia. There is no cure, and it is nearly always fatal, killing pigs within days. It does not affect humans, but they can easily spread it. The disease has not been discovered in the United States.

The U.N.’s Food and Agriculture Organization quoted the Chinese government as saying that as of late April, more than 1 million pigs had been culled. Given Chinese producers’ reluctance to report the disease and the government’s tendency to hide the true scope of problems, it could be much bigger than that — and could get still worse.

Experts at the Dutch bank Rabobank estimate that pork production will fall 30 percent in China this year, and will take years to recover.

Because of the size of China’s industry, the disease is affecting pork prices around the globe. In China, it will probably force up the cost of alternative sources of meat, driving inflation. Despite the tariffs, China has been a good market for American producers. But all the same, China canceled orders for more than 3,000 metric tons of U.S. pork earlier this month.

Because soybeans are a major source of feed for the Chinese pork industry, the disease is likely to cause more problems for U.S. soybean farmers, whose exports already have been hit hard by the trade war. It will be some time before Chinese farmers restart their herds, and that means an overall drop in China’s demand for soybeans. Given the tariffs and the competition American farmers already face from producers such as Brazil, it adds up to what one analyst calls “a train wreck in slow motion” for the soy bean market.

There is one final concern, according to Laurie Garrett, a Pulitzer Prize-winning science writer and global health expert: Chinese hogs are the source of a key ingredient for the blood thinner heparin. Fewer pigs may mean less heparin — and a temptation to cheat, which happened in 2007, resulting in the deaths of 68 U.S. dialysis patients.  

The trade dispute is important, and it’s getting the daily headlines. But they make it easy to forget that there is a lot of other important stuff going on, too.

You can also learn about all our free newsletter options.

Comments (5)

  1. Submitted by joe smith on 05/20/2019 - 03:34 pm.

    China is losing manufacturing plants daily with this trade war. I have a friend in S Vietnam right now putting his manufacturing plant there instead of China. He said dealing with the Chinese is almost impossible and with this new tariff war, it was time to change.

    • Submitted by RB Holbrook on 05/20/2019 - 04:00 pm.

      So they’re going to Vietnam, but not the United States.

      That’s only “winning” if we count China losing as a victory, without regard to whether it benefits the US.

      • Submitted by joe smith on 05/20/2019 - 05:04 pm.

        His suppliers here in the USA will not be hurt but China is losing businesses daily. He is a small manufacture but much happier that he will no longer have to deal with the Chinese. He has had plants in China for 15-20 years and said it is about time that someone in the White House had the guts to stand up to Chinese running all over the USA.

        • Submitted by RB Holbrook on 05/21/2019 - 09:38 am.

          His suppliers in the US will not be hurt, but you’re not saying that they will be helped.

          As I said, the important thing seems to be that the Chinese take a hit.

    • Submitted by Tom Christensen on 05/20/2019 - 11:48 pm.

      That is a perverse sense of winning. Trump has two years or less to prove to our poor farmer that “Trade Wars Are Easy To Win”. Trump to the Farmers, the good news is we won the trade war. The bad news is South Vietnam got all the business. Let see how well your philosophy goes over with Americans.

Leave a Reply