China is becoming a \u201cfactory to the factories,\u201d ramping up its exports of industrial components like smartphone parts, processors, memory chips and lithium-ion batteries, destined for final assembly in economies like Southeast Asia.<\/p>\n
\u201cWe may buy fewer \u2018Made in China\u2019 goods going forward, but more products will have internal components manufactured in China,\u201d says Jeongmin Seong, a partner at the McKinsey<\/a> Global Institute (MGI), the consulting firm\u2019s research arm.\u00a0<\/p>\n China\u2019s exports of consumer goods declined by 2% last year, yet exports of intermediate goods rose by 9%.\u00a0<\/p>\n Trade between the U.S. and China declined by 30% last year, due to U.S. President Donald Trump\u2019s steep tariffs on Chinese goods. Yet \u201cChina stepped up to diversify its trading partners, and mostly with emerging economies,\u201d explains Seong, who is also the author of a new MGI report on global trade. Those new trading partners, mostly manufacturing hubs, had more need for cheap machinery and components from China, rather than more costly finished products.<\/p>\n MGI\u2019s report, titled Geopolitics and the Geometry of Global Trade,<\/a> notes that the U.S. also changed its trading partners last year. The country successfully replaced two-thirds of the goods it previously sourced from China, sourcing smartphones from India and laptops from Southeast Asia.\u00a0<\/p>\n ASEAN in particular is playing a key role in tariff-induced trade adjustments. Southeast Asian countries were already picking up manufacturing business moving out of China, as companies tried to manage earlier tariffs on Chinese goods and diversify their supply chains in the wake of the COVID pandemic.<\/p>\n Trump\u2019s newest trade war is likely to accelerate the shift to adopt \u201cChina plus one\u201d supply chains.<\/p>\n \u201cASEAN played the role of matchmaker for the global supply chain and kept it from breaking up,\u201d Seong says. \u201cASEAN\u2019s exports grew about 14%, which is more than two times as fast as the global average.\u201d Notably, Southeast Asia ramped up trade with both China and the U.S., with the ASEAN-China and ASEAN-U.S. trade corridors being two of the world\u2019s fastest growing, according to MGI.<\/p>\n