Opportunities in developping countries related to US tarifs on China exports

[beerbaron]

For the last few weeks we have been spending quite a bit of time at my day job discussing new US tarifs on China and what it means for our supply chain that is all established in China. And one thing that stands out is that everybody was putting their hands in the sand thinking that Trump's tarifs were bluff but now I believe people are realizing that it's real and it might last for a long time. Believe me, the tarifs will have a real impact on China, but nobody is seriously considering returning to the US.

 

Hence, I have been trying to find a way to profit from this by finding which countries will benefit the move of manufacturing jobs. If you think about it we might have a huge manufacturing center of 1B+ inhabitant lose jobs by the millions which should a huge bonanza for the other nations that will get this job's migration.

 

Vietnam comes first to mind, but it's a communist country so does anybody have an idea of an indirect play on this one?

Laos is also communist.

 

Cambodgia, Thailand, Indonesia or Philippines might also be appropriate. A good way would be to buy banks in those countries. Anybody has good ideas around that theme?

 

Thanks

BeerBaron

[Jurgis]

Not to hijack the thread: if Chinese currency drops comparatively to tariffs, why would anyone move manufacturing? The price remains the same.

[beerbaron]

I dont think the Chinese currency will drop 25%. Also resources are traded in USD so yes, labor drops 25% but the material cost is basically the same.

 

BeerBaron

[Spekulatius]

The problem is that nobody knows what to do, because Trump starts a trade war with the rest of the world basically. So reconfiguring the supply chain to a different country ( which might take years) is a very high risk proposition, as you could end up with the same tariffs anyways.

I think insourcing to the US will occur, but in a very limited way. For one thing, the labor force to do this just isn’t available, because there is no slack any more. The best I can come up with a robotics companies, but most of those are foreign too ( Fanuc, Kuka). Those may get hit by tariffs as well.

[Jurgis]

On the other hand, the wages and costs in China have been rising for some time and some companies have already moved or planned to move some production to cheaper countries like Vietnam, Cambodia, Bangladesh, etc. So some of moves will accelerate, but also some of moves are not trivial. Depends on whether you're talking about zippers or steel or iPhones. ;) Also unlike previous moves based on cost, there are few places of the size that can replace all China production. This is not insurmountable, but would need planning, cost analysis, etc.

Another two factors: some things are fungible and China production will just go to other consumers rather than US; some products are multipart and possibly the answer is to make parts in China assemble in ??? and then ship to US.

 

TL;DR: Situation is complex, some things will move or have moved, some things won't. That's why companies presumably have good sourcing depts. ;)

[SharperDingaan]

For the last few weeks we have been spending quite a bit of time at my day job discussing new US tarifs on China and what it means for our supply chain that is all established in China. And one thing that stands out is that everybody was putting their hands in the sand thinking that Trump's tarifs were bluff but now I believe people are realizing that it's real and it might last for a long time. Believe me, the tarifs will have a real impact on China, but nobody is seriously considering returning to the US.

 

Hence, I have been trying to find a way to profit from this by finding which countries will benefit the move of manufacturing jobs. If you think about it we might have a huge manufacturing center of 1B+ inhabitant lose jobs by the millions which should a huge bonanza for the other nations that will get this job's migration.

 

Vietnam comes first to mind, but it's a communist country so does anybody have an idea of an indirect play on this one?

Laos is also communist.

 

Cambodgia, Thailand, Indonesia or Philippines might also be appropriate. A good way would be to buy banks in those countries. Anybody has good ideas around that theme?

 

Thanks

BeerBaron

 

You might want to think in terms of time horizon. < 1 year, 1-3 years, 4 years+, etc.

 

With the escalating trade war; over the next year - all manufacturers are probably going to sell less than 'normal'. Hence downside earnings bias and the shares of all kinds of global, quality firms, available at less than expected prices. If you think that accummulating global job loss eventually forces adult discussion, the earnings bias is only temporary - and there should be signicant price gains as tariffs ease &/or are dialed back. The big unknown is timing - were control of the US senate to change hands in the midterms, most would expect a shortening; otherwise a lengthening.

 

The US does have quite a few valid points, but Trump's toxicity makes it impossible to implement them.

Hence medium term most would expect changes, but executed by different individuals. Anyones guess as to what they might be.

 

Our own thoughts are that there will ultimately need to be another Roosevelt type 'new deal'.

Fiscal stimulas in a big way to rebuild the roads, bridges, ports. pipelines. etc - that will require people.

 

SD

 

 

[Spekulatius]

FWIW and not totally unrelated, puts on the SPY are very very cheap right now. Nothing wrong with buying a bit insurance. I did so today.

If I had to pick a country to Ben efit from the trade war it would probably be Mexico.