The Fate of China's Global Supply Chains in the New Tariff Era
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hello and welcome to a second edition this week of the china global south podcast a proud member of the sineka podcast network i'm eric olander unfortunately giro and kobus well not unfortunately for them they're off at a conference in nairobi this week and they won't be able to join us for today's discussion but we're going to have them back

on Friday in our Africa show, and there's been a lot going on in the China-Africa space, so make sure you check that out. But today we're gonna drop a second China Global South podcast in your feed just because of the magnitude of everything that's been going on around the world with the markets, especially out here in Asia, but certainly watching Wall Street overnight was just a heart-wrenching thing where it was up and it was down and rumors and everything what's going on. Today we're gonna talk about tariffs,

and supply chains. Now Donald Trump has threatened China with an extra 50% tariff on goods imported to the U.S. if China does not withdraw its 34% counter tariff that it put on. We're now in this, as we talked about yesterday in our discussion with Princeton University's Kyle Chan, we are in, there's no doubt about it, a world trade war, and these counter tariffs and tariff actions are

are the latest of that. Now, that means U.S. companies, get this, could face a total rate of 104% on Chinese imports as the new 50% threat that Trump issued this week comes on top of the 20% tariffs that he put on in March and then the 34% tariffs that went on last week. Following all that?

104% could potentially basically bring US-China trade to a halt. Last year, US-China trade exceeded $525 billion. So the scale and the scope of this is absolutely enormous. Now, unlike other countries that are accommodating the United States, Beijing is having none of it and said on Tuesday that it would, quote, fight until the end. Here's Chinese Foreign Ministry spokesperson Lin Jian speaking through an interpreter at the regular press briefing in Beijing. ♪

The U.S. abuse of tariffs seriously infringes upon the legitimate rights and interests of countries, violates WTO rules, hurts the rules-based multilateral trading system, and destabilizes global economic order. It is a typical move of unilateralism, protectionism, and economic bullying.

It is rejected by the whole international community. China strongly deplores and firmly opposes this. Let me stress once again that trade wars and tariff wars have no winners, and protectionism has no way out. The Chinese people never create trouble, neither do we fear trouble.

Pressuring, threatening or extorting China is not the right way to engage with us. China will do what is necessary to firmly safeguard our legitimate and lawful rights and interests. If the U.S. insists on waging the tariffs war and trade war regardless of the interests of both countries and the international community, China will play along to the end.

That reference to basically fighting until the end is what caught the headlines out here in Asia and really sent a chill through the markets. Investors were also shaken this week when White House trade advisor Peter Navarro, he told CNBC that Vietnam's offer to eliminate tariffs on U.S. imports, quote, wouldn't matter.

And just remember, that's a big deal because Vietnam has the third largest trade surplus with the United States at $123 billion, and the Southeast Asian country is now squarely in the crosshairs of the Trump administration. But hopes were raised last week when Communist Party General Secretary Tho Lam got into a phone conversation with Donald Trump, which really sent a vibe that

Maybe a deal could be struck if the Vietnamese buy more Boeing planes, they're going to build some Trump golf courses, they're going to buy more natural gas, and they're going to allow Elon Musk's Starlink internet service to come into the country. There was some a little bit of optimism out here that that would potentially settle it. And remember, the White House has been saying that they want to do deals.

But all of that got shaken on Monday when Navarro made it clear on CNBC that that won't cut it because the White House is angry about the offshoring of Chinese supply chains to Vietnam in a phenomenon called transshipments, where Chinese parts and products are

are made in China, shipped to Vietnam, assembled in Vietnam as products that are then exported to the United States, effectively circumventing these tariffs. Let's take a listen now to the thinking at the White House from Peter Navarro. What we have here is a national emergency based on massive tariffs

chronic trade deficit caused by systematically higher tariffs and non-tariff barriers. So when you ask if we're willing to negotiate, the president will always listen. But let's understand what the problem is. When you have a country like Vietnam, let's take Vietnam. When they come to us and say, we'll go to zero tariffs, that means nothing to us because it's the non-tariff cheating that matters. Let's do Vietnam, Joe.

They sell us $15 for every $1 we sell them. About $5 of that $15 is China transshipping to Vietnam to evade their tariffs. What does Vietnam do? They dump into our markets, killing our shrimpers, our people who make metal brackets, kitchen cabinets, agricultural products.

They engage in intellectual property theft. They have the biggest number of cases, aside from China, at the Department of Commerce on the dumping. So the point is, the point is, anybody who wants to come to talk to us...

Talk to us about lowering your non-tariff barriers. Vietnam has a 10% VAT. Europe has a 19% VAT. We can't compete against that. I think the VAT issue is something that's the value-added tax was a little confusing to a lot of people because that's often a domestic tax charged to consumers within those countries.

and not necessarily related to trade. So a lot of people were confused about that. But listening to Navarro, trade policy folks in Cambodia, in Mexico, in Brazil, and around the global south, their stomachs probably sank on this in part because there's been a 10 to 15 year trend of China moving big parts of its supply chains offshore. And if the United States is interpreting that as transshipment and potentially a barrier to reaching some kind of tariff goal,

It is going to be very difficult to reach deals to remove these tariffs and to get past where we are today. That's why I am thrilled to be able to have on the show three experts on this very topic to help us understand what's happening and looking at Chinese supply chains and how they may be impacted further.

by all of these events that are going on. The folks at the Rhodium Group, they are one of the top China consultancy and advisories in the world, based in Washington, but also offices in New York and Paris. They issued a report back in February called China and the Future of Global Supply Chain's

Of course, this was written in February, long before, two months before Donald Trump's Liberation Day in April. But it does give us some very fascinating insights into the trends. It was written by Agatha Kratz, who's a partner at Rhodium Group, leading the firm's corporate advisory work. She's been on our show many times before. Juliana Bouchot, who's a senior analyst with Rhodium's corporate advisory team, also with Agatha in Paris.

and Lauren Piper, who's doing graduate work at Princeton University, but previously worked on the Rhodium corporate advisory team as well. Thank you all for joining us today. And the timing of our discussion couldn't be better aligned with your report as well. So Agatha, Julia, Lauren, great to have you on the show. Thank you for having us, Eric.

Agatha, let's start with you just as the leader of the team here. When you hear Peter Navarro and you see the events that have unfolded since you published the report in February and you hear this talk about the frustration that the White House has with trans shipments, let's just get your reaction as a segue into the details into your report. So I think what I'm going to do is I'm going to

One of the reasons that drove us to write this report, it's available on the website for everyone to see, is the kind of constant mention of Vietnam as a transshipment hub, right? And we wanted to go deeper into this as we usually do at the Rhodium Group to see if the data supported some of these claims, right?

And so we went in and what we wanted to see was whether it was transshipment, whether it was final assembly, which could also be a problem, right? If you're relying mostly on cheap subsidized Chinese inputs, just merely put them together in Vietnam, then sell them off and sell them into the U.S., it might be also a problem. Or if you actually had deeper supply chains forming on the ground in Vietnam, but also Malaysia, Thailand and all kinds of places around the world, but especially ASEAN, which is one of the findings of the

report, right? And what we found was two parallel and equally valid truths. One, which is that China remains an absolute dominant manufacturing power globally and has actually increased its share of

of manufacturing, export in a wide range of sectors. We look at just four of those. We look at textile, electronics, cars and solar PVs. And China is mostly increasing its share of global manufacturing there. But at the same time, you also have emerging manufacturing hubs in Asia, especially in Southeast Asia, especially in Vietnam. But once again, not just. And those are, of course, doing some level of trade shipment. I mean, there's no question that there's some level of activity

there that's just pretty much going to a Vietnamese port, re-labeling, and then going off to the U.S. But we're also seeing final assembly and a whole lot of it from Chinese companies, but not just, and a whole lot of suppliers following

those assemblers into the country. And so we now have finally, you know, six, seven, eight years after the first trade war, we now finally have deep supply chains that are establishing where, by the way, I should say, establishing in ASEAN in a way that should make people like Peter Navarro feel better about what's happening in Vietnam. The problem is what happened last week is just interrupting this in the most violent way. It's going to just break the cycle in a terrible way if it continues.

Juliana, if you had the chance to speak with Peter Navarro to explain to him what Agatha was explaining here about the nature of Chinese supply chains in Vietnam, what would you tell him?

Oh gosh, what a question. I think one of the realizations we've come to in this report is there are two really meaningful axes to look at the speed at which diversification is going to happen. One is policy and the intensity of de-risking policies. And the other is sort of the extent to which China has comparative manufacturing advantage

a comparative advantage in efficiency and cost advantage, etc. And of course, the extent to which other production hubs can emerge as reliable candidates to pick up China's manufacturing share is crucial here. And so these policies which implement sort of across-the-board tariffs on all countries, including alt-China diversification partners, are in some ways going to lead maybe to more of a freeze in supply chains,

and lead perhaps more to increasing inflation rather than meaningfully restructuring supply chains in the short term. - Yeah, so the way that they're going about it is so violent, as Agatha said, that it's actually going to push costs up and potentially spark inflation, not only in the United States, but elsewhere as well. Lauren, one of the kind of interesting things about the way you guys did this report was that you're both backwards looking and forward looking. So you look back 10 years, but then also through 2030.

And I guess, you know, I'd like to hear from you on both sides of this. On the one hand, you made it very clear in the report that the trend of diversifying Chinese supply chains was well underway before what we've seen this year, before the second Trump administration. But I guess as you look to 2030, I'm wondering how many of your assumptions may have been disrupted by the violence

of, again, what Agatha was saying, the violence of the Trump policy that's been so disruptive? How many of your forward-looking projections do you think are holding up? I think looking at the report, as Agatha mentioned, the key takeaway is that China is still incredibly dominant across different supply chains. So we looked at apparel, we looked at electronics, and so on. And let's take apparel as an example here. This is a sector that for a long time has been away from

less advanced economies to become part of global value chains. Actually, it's like how China became a global manufacturing power was the rise in made-in-China apparel starting around the 2000s. And so we've seen a little bit of diversification. So a handful of alternative production hubs like Vietnam, Bangladesh, Cambodia, and so on have emerged. But again, China is still a major player. It accounted for over 30% of global exports in 2023. And it's still a top producer of

of some of the inputs. So these are things like the buttons, even the fabric and so on. And so thinking about what happens next, the most important factor is going to be where the tariff levels end up. Right now, Trump has called for tariffs even on these other production hubs like Vietnam, like Bangladesh, like Cambodia, that are going to significantly increase the cost of doing business. While we've seen diversification happen quite a bit, if there is not

not much of a difference in tariff levels between China and these alternative production hubs. There's a relatively high chance that these supply chains are going to remain in China. And this is because China has such a productive, efficient environment. We've seen even as labor costs run up in China, the value of having these optimized supply chains can really reduce costs for suppliers. So for example, we read about a company in China that makes jeans. And

They have been in Cambodia, actually, for the past 20 years. But as labor costs rise there, they're actually thinking about moving back to China because the factories tend to be more efficient. You know, it's easier to do business there. And the labor cost difference is just not that high. So looking ahead, if we see that there's not much of a difference between the tariff levels imposed on China versus these sort of alternative manufacturing hubs, it's possible that some of these supply chains may not ship that much, particularly in sectors where reshoring is not really viable.

Let's stick with apparel because that's one of the more interesting sectors of the four that you looked at, in part because, again, China's profile in this is changing a lot. You said that in the report, the shift has been underway, again, for the past 15 years, moving out to places like Bangladesh, Vietnam, Cambodia and whatnot. That logic may not make as much sense when there's 46% tariffs on

on Vietnamese goods, as you pointed out, the same thing for jeans in Cambodia, where they're facing a 50% tariff, even higher. News came out this week as well that the United States has gone back now on its policy to tariff products under $800 coming in directly from China, which is going to impact

Shein and Timu, which is the huge e-commerce. So this idea of buying 15 dresses on Shein and then returning 14, that all is going to go away now that those are going to be heavily tariffed. Lauren, let's just quickly wrap up with you on apparel. This impact is going to severely disrupt daily life in the United States that has become accustomed to being able to go online or use your thumb to

on a phone to be able to purchase Shein goods and to go into Walmart and buy Nike shoes for $60, $70. That's no longer going to be the case. I mean, are we really going to look at an experiment of what it's like in the United States to be without low-cost Chinese products? I think you're absolutely right. I'm incredibly interested to watch what happens with these Chinese companies like Shein and Tenmu that you mentioned that to date have not really had to pay any tariffs. I think that what will be really interesting is that these companies are going to

potentially move from facing zero tariffs to maybe 100, 120%. And there's not going to be, again, like any room for them to hide. Some of these companies have to date tried to diversify their supply chains. So Shein and Temu have reportedly looked at Brazil. They've looked at

Turkey, and they've looked at Mexico. And even in February, Shein was asking some of its top suppliers to expand production in places like Vietnam. But by and large, they are mostly producing in China because this is where they can have these network of small suppliers that can trial out small batch orders of new trendy clothes. It makes it possible to order the 15 dresses and return 14 of them. And they're also apparently facing pressure from the Ministry of Commerce to keep manufacturing in China.

So it'll, again, like the final costs of these products for U.S. consumers is going to depend highly on where these tariff rates come out because there's not, again, if there's tariffs imposed broadly on these alternative suppliers, not just China, but on Vietnam, Bangladesh, Cambodia, India, and so on, it's going to make it incredibly difficult to reduce costs.

Agatha, when we hear everything that Lauren's laid out in terms of the apparel sector, a lot of this applies to some of the other sectors that you looked at. Let's look at consumer electronics. And I imagine a lot of Rhodium's clients are probably coming to you and the corporate advisory team and saying, what do we do?

what is going on? How do we adapt to this type of world that we're in when we can't see past next week? Before we get into consumer electronics, can you just give us a few insights into some of the conversations that you're having with your clients now about some of their concerns and how they are responding to some of these dramatic changes? Yeah, of course. I think you need to break it down short-term, medium-term, long-term. That's the only way that you can kind of make sense of what's happening, right? Short-term, I think you're going to have a lot of wait and see at

attitudes, right? You're going to have people, you're going to have investors, you're going to have traders and shippers who are just going to wait out and see what happens, what happens between the US and China, what happens between the US and the EU, what happens in the first few negotiations. I mean, if I were a company today, I would wait for a month or two to see what happens with India, for example, in that discussion, whether it

Because India, in our opinion, at least, is probably one of the emerging markets out there that's the closest to potentially striking a deal with the Trump administration, right? There was a great summit in Washington between Modi and Trump. There was a great discussion about having a trade agreement. India said, you know, it was very willing to think about tariff dropping and potentially other kind of purchases and everything. So I would wait for really a while and wait and see what happens. First, to see where negotiations go. Second, to see how much kind of harm gets...

shed across the whole of the U.S. economy, global, of course, but U.S. first and foremost, right? Wait to see inflation numbers coming out, wait to see trade numbers coming out, wait to see employment numbers coming out, wait to see markets move back and forth on the back of announcements and then see where things land. And at this stage, I mean, the shock that the Trump administration created to the system last week is so big that something's going to have to give at some point, right? And something's going to have to change. This is highly, highly and absolutely unsustainable. And so the question is, how does it change? Does it change on the

kind of sector basis and product basis? Does it change on a country basis? So sector basis would be to say, you know what, consumer electronics and textile, I'm never going to make those in the US. Just let them flow in, right? Wherever they come from, whatever, let them come in. And they're such a huge part of the consumer basket. And they're now taxed at about 40%. I mean, for textile, it's incredible. Just let them come in

duty-free, right? Or somewhere around duty-free or maybe 10% so that you can collect a bit of revenues on them. Or country-wise, right? Does India get a deal and then Japan get a deal and then a few more? And then as a company, you're going to start looking at this and then look at whether there's also just a broad-based kind of delay of the tariff, right? We could

Absolutely imagine that between now and tonight, because sometimes these things happen. You have a delay of a month, you have a delay of two months, you have a delay of even three days, right? And that's, of course, what the market got all excited about in New York on Tuesday when there was a false rumor of a 90-day delay. Yeah. And so wait and see. That's the first phase. The second phase, medium term, is then to say, OK, what are the signals I get and what do they tell me about who's having the most influence in the Trump cabinet? What is, you know, the mix of...

What the Trump administration wants to do? Do they want to raise revenues? Do they want to reshape supply chain so that they move back to America? Or do they just want to strike deals? And how does that compare with the economic constraints of this, right? And so in the medium run, you're going to have a little bit more clarity, if not certainty, because we're never going to be in a certain word in the next four years, right? But a little bit more clarity about what are the key drivers of the policy and what are some of the kind of repeat games that are being played. And then long term, you're going to have to look for countries that have the biggest differential with...

the highest kind of tax country, right? And so 10% countries we're going to look at very closely. I mean, there's a lot of opportunity out there for global sales countries, right? I mean, Egypt and Turkey and Morocco are in a great position at 10%, right? It looks bad, but sincerely, like 10% compared to 47% for Vietnam versus like 65% to...

well, now 120, right, on China, if you add also the Biden and Trump 1.0 tariffs, you're going to be fine, right? The only thing is, as a country, you're going to need to manage transshipment because the U.S. administration is not going to like that. Chinese input or value add being used too much

not going to like that either, etc. So there's still going to be an action-reaction cycle. The Trump administration is going to be watching for illegal behaviors and transshipment and Chinese value-add being used because they don't like this. But I think it's a long game at this stage. First is just watch and wait and watch what's happening.

I'm glad you brought up this question of winners and losers. And one of the issues that we've been following is that countries like Brazil, Argentina, Chile are going to become very big winners potentially as China shifts out of U.S. agriculture to buy from other providers. And even Europe may benefit from that as well. Funny you talked about U.S. apparel. One of the videos, and I'll put this in the show notes that were circulating on social media today,

on Chinese social media, on WeChat, was an AI-generated video of overweight and obese Americans sitting behind sewing machines making T-shirts. And that's kind of the humor that is circulating on Chinese. Again, it's odd because this is not a type of job that the Americans really want because it is...

tough, it is brutal, it is low cost, as long as Americans want to get 299 t-shirts at Walmart. You're not going to make a 299 t-shirt spending $35 an hour with union benefits. Those are incongruous with one another. Juliana, let's go down our list now to consumer electronics.

You mentioned in the report that of the four sectors, consumer electronics is different than the others because the Chinese share of that supply chain is the highest. Talk to us a little bit about why consumer electronics, phones and computers and things like that are different. And also the fact that I recently bought a new Apple computer that shipped directly from Guangzhou to me in the United States. Those days may be gone as well if the tariffs are what they are. Talk to us about consumer electronics.

Eric, can I jump here? Yeah. Just because Lauren actually did all of the research on electronics. Great. Well, then let's go down to Lauren. Okay. I'll come back to you, Juliana. Lauren, you are up now on consumer electronics.

The takeaway from consumer electronics is that China is just incredibly dominant in this sector. Historically, electronics has been a sector with these very complex, globally integrated supply chains. Take your smartphone or your laptop that you bought. Typically, it was going to have a chip that was maybe designed in the US, manufactured in Taiwan using equipment from the Netherlands. This chip is

then going to get shipped to China or Vietnam or India, and it's going to be assembled alongside components from South Korea, from Germany, and also from China. So electronics is a sector which is very complex, globally integrated supply chains. And historically, these supply chains have shifted based on differences in production skills and in costs. And, you know, the expectation really was that over time, China, too, would offshore some of

the final assembly as it moved up the value chain. But as I mentioned earlier, as we've seen in other industries, China really puts this dynamic into question. And for the past 15 years, it's exported more electronics than all other countries combined. That's 65% of laptop and tablet exports and around half of smartphone exports by value.

And one last thing to note here is that it's not just the sort of finished products, it's also the components. And so even when we see some supply chains of, you know, the final assembly moving to places like Vietnam and in India, particularly for the sort of Samsung and Apple, these supply chains are still highly reliant on machinery, on components, and even sometimes engineers that are coming from China. And so, you know,

I think with regards to the U.S. tariffs, I think the positive news for electronics is that there is some existing manufacturing capacity outside of China, despite China's

just overwhelming preeminence in this sector. For example, Apple, like I mentioned, has significant capabilities in India and in Vietnam. And these companies will be able to use some of this manufacturing capacity to shift production and to shift some of the trade flows to the United States. So actually, there was a report, I think, that came out yesterday suggesting that Apple

Apple is going to take basically everything it makes in India and ship it to the U.S. market. But because China is still such a key player throughout the electronic supply chain, there's no way for these manufacturing sites outside of China to fully meet U.S. demand. I think the report said that if Apple shifts all of its production in India and puts it to the United States, it will only meet around 50% of current U.S. demand. So the implication here for the U.S. is that there's just

nowhere to hide from these tariffs and US consumers are going to feel it. I mean, Apple has been the focus of the Trump administration because of its iconic brand. And I mean, what you're hearing from analysts, though, saying it would be impossible for

I mean, it's not possible at all to move the Apple supply chain to the United States, even if it wanted to. And Tim Cook, who is a supply chain expert himself, who came through the Apple ranks on the supply chain side, said that one of the biggest issues facing them is the fact that in China, there's an entire population of supply chain engineers who are

who have decades of experience and he can't find those people in the United States. But as you talked about, Lauren, too, that it's not just the iPhone, it's the five or 600 companies that feed into the iPhone with the supply chain. And then on top of that, anybody who spent time in Southern China around Dongguan or in Guangdong Province

We'll know that this infrastructure that the Chinese have built to bring the stuff in and to ship the stuff out is not even comparable to what we have in the United States. When you look at the ports of Shenzhen and Guangzhou and Shanghai compared to the ports of Long Beach and Oakland, I mean, they couldn't handle a fraction of the load of what these Chinese ports are handling in terms of the volume. Remember that Apple has to produce...

something like maybe 50 to 60 million iPhones on their launch of a new iPhone product. And they have to scale that up in the space of about two to three weeks when design is locked and shipment has to start. Lauren, let's just call us what it is. Is it even possible to do what Trump wants to do and move the Apple supply chain to the United States based on what you guys found in your research?

I think that it would be incredibly difficult. Take Apple as an example. After President Trump imposed tariffs in his first term on China, the company started looking to Vietnam and to India as alternative production hubs. They've invested significantly in this effort, as you mentioned, not just to bring the final assembly, but also to encourage their component suppliers and other companies to co-locate with them. Apple started this process back in President Trump's first term, but they are still heavily reliant

on China and they're having to manage the costs associated with moving elsewhere because compared to China, really no country can replicate the scale and the production efficiencies it has. So the short answer is that no, in the near term, there's a very low chance of the U.S. actually reshoring these sorts of manufacturing activities.

Eric, let me just add something here, which is to say, you know, there is a rational and efficient way to try and do this. Right. Even if you wanted to do this, even if you wanted to do this more than anything else. Right. You wanted to bring back electronics and that was your absolute favorite industry and you wanted it in the US. There would be pathways. Right. You would have to say we'll do tariff, but we'll do tariff over time. We'll do them over time.

10 years, we're going to let Vietnam sell us things in the meantime. And we're going to let Vietnam use a little bit of Chinese things in the meantime. And over time, we're going to increase tariffs on Vietnam if they continue using Chinese inputs, right? But we're going to do that over a long period, stretch period of time, right? So that's the first thing. You give companies time.

And then you need to give companies certainty. And this is where we have a problem here, because everything with the tariffs at the moment just makes it completely impossible for any company to make an investment because they don't know what will happen next week, next month, next year. Right. And so if you had both of those things, then you could actually get something moving. And as a matter of fact, and if there's one thing that was incredibly surprising and kind of heartwarming in the report was also the fact that the U.S. picked up.

manufacturing supply chain clout over the past five years. It's the only, absolute only, advanced economy that managed to reclaim global export and global supply chain and manufacturing kind of production globally, right? Why? Because they had a peak

piecemeal under Biden, piecemeal approach that said, OK, over the next four or five years, this is what we wish the world to look like. This is what we wish our supply chains for clean technologies to look like. We want to reshore them. This is what it's going to take. We're going to give you X years to get your supply chain China free. We're going to give you X years to invest in the country and start selling. And we're going to give you the certainty that you're going to get subsidies,

And especially consumers are going to get subsidies if they buy your product made in America, right? And all of this in a way means it is doable. It's hard, it's painful, it's expensive, it takes time. But you want to restore an industry, you probably can do it. I mean, you don't want to do it for everything. You probably don't want to do it for textile. And by the way, you probably don't want to do it for phones. But you can do it if you do it in a slightly more structured way. And where we are now is absolutely not this, right?

Well, the best example of that, of course, was the CHIPS Act, a $50 billion initiative to bring chips manufacturing to the United States and to wean our dependence off of Taiwan. But the Trump administration has killed the CHIPS Act, so that is probably not going to happen in any meaningful way. Okay. Agatha and Lauren, let's kind of wrap up our discussion looking at both solar panels and the automotive sector. These are different than

the first two categories that you looked at, in part because this is the forward-looking part of China's economy. They want to be associated with new technologies. Solar and automotive are very much part of their outreach. Talk to us a little bit about how the distribution of those supply chains, which have been much more aggressive than what we've seen in consumer electronics, are shaping out and how you think they're going to withstand the current challenges. First, Lauren, to you, and then Agatha, I'd love to get your comments on that.

Absolutely. I think maybe we can start with West Solar Panels. This is a sector where China has a really significant cost advantage, and that has underpinned really its central role in these sort of supply chains. We've seen over the past decade, its share of global exports increasing to over 54% in 2023. And, you know, I think what's really interesting about it is that it might be a sign of what's to come for some of the other industries hit by U.S. tariffs. In particular, if

At the end of this trade war, we see there being...

a relatively significant difference between the tariffs imposed on China versus on some other exporting countries. And so the case study to look at here is actually the U.S. anti-dumping and countervailing duties imposed on Chinese solar cell imports back in 2012. At the time, China was by far the largest supplier of U.S. solar panels, accounting for around half of U.S. imports. But due to concerns about unfair Chinese trade practices, the U.S. imposed

anti-jumping duties of around 30% and countervailing duties of around 3% to 5%. And this made manufacturing in China much more costly compared to other countries.

So over the following years, U.S. supply of solar panels shifted away from China and to a handful of countries in Southeast Asia, namely Thailand, Malaysia, Cambodia, and Vietnam. And as of 2023, China has become basically not at all relevant in the U.S. supply of solar panels. And 70% of U.S. solar panels come from these countries. And I think this is relevant because it really shows how these tariffs can create

incentives to create supply chains outside of China, again, if there's enough of a difference between those airfreights.

Yeah. I mean, what about the rest of the world? So obviously the U.S. is a big consumer, but the rest of the world is also a big player and big demand for Chinese solar panels. You're absolutely right. I think the solar panels is particularly interesting because what we've seen is just a complete splintering of the supply chain where Chinese solar panels are mainly serving markets in the EU, plus also in the global south, whereas these

Ex-China supply chains coming from Southeast Asia and also increasingly now from India and Turkey are looking to serve the U.S. market.

Okay, Agatha, we're going to close down our conversation on the sectoral verticals that you guys looked at on automotives. This is really the big story of the past couple of years. BYD setting up factories in Turkey and Indonesia and Vietnam. They were going to set up in Mexico. They are setting up in Brazil. They are moving very quickly and BYD is by no means alone. So many of the Chinese auto majors are moving their production out of China. What did you find in autos?

So we found a few things that we thought were interesting. The first one, there's a big disconnect, of course, between ICEs and EVs, right? You have a technology that... ICEs are internal combustion engines. In ICEs, you still have, you know, very, very kind of decent market shares from Japan and Germany and Central and Eastern Europe and the US to some extent, Mexico, of course, who have been dominating as global hub the production in that sector. Now, when you turn to EV, which is a new kind of new technology, but importantly, it's

a new technology that depends on a very, very China-dominated supply chain, then you get to a completely different picture, right? And so that is most obvious there.

what's very interesting with solar panels, the same as it is with EVs and batteries, is that we're in a sector where China's scale at home means that it's harder by the year to catch up with China. And so in a way, we have China being dominant and still increasing its supply, I mean, still increasing its market share, right, which is very puzzling. But even in ICE, you've got overcapacity in China for a certain part. And

for ICE cars at the end of the day. They're not going necessarily to the US. They're not going to Europe, but they're going to Russia. They're going to a lot of Southeast Asia. They're going to Latin America. And so you also see China picking up in all of those places, right? And very, very important in the auto sector. One thing I would note, which is quite interesting as well, is that in a series of sector, what we observe is that

because of its absolute competitiveness, its ability to scale, its ability to just produce things not just cheaply but efficiently at this stage, which is almost as important as the cost, right? At this point, we're speaking about just the efficiency of making things in China. It means that China is at the moment breaking certain business cases, right? And auto is a big case here because auto used to be intended to be a very regional affair, right? You wanted to produce autos close to your enterprise

And market, because there's a lot of rules, you know, Navarro would say non-trade barriers, but there's a lot of rules on kind of local auto markets. So you wanted to be close to your consumer. You wanted to be close to your final market. You usually had very regionalized supply chains for tires and for brakes and for engines and things like this, right? And so you had these hubs. You had one in Europe, you had one in Mexico, and then you had one in China for China, right? But because China has become so incredibly competitive in making everything, including auto parts, including final autos,

then it's breaking that business model because it actually now starts making sense to ship cars, to ship certain parts that were extremely heavy and didn't make sense to ship before, to ship certain goods like tires that didn't make sense to ship before because on the country they were so cheap, you wanted to make them very close to where you were assembling the car, etc., etc. And so in solar PV, in wind, in places like this, but in car in particular, you see kind of China's competitiveness just breaking some of the things we held back

true as business cases for certain industries. And that is highly, highly disruptive, right? And it makes it so much harder for any country, be it, you know, advanced economies, the U.S., or be it emerging economies to catch up. And this is where we see the barriers. I should add very quickly, waiting one more year with the U.S. tariffs at the moment and waiting one more year for China's competitiveness to solidify, to continue for them to get better, not just at price and at scaling, but also at tech and

And just making a ton of a whole lot of things and a whole lot of products in a whole lot of sectors better and cheaper. It will be harder by next year to diversify. And that will have been a year loss in that whole trend, right?

Right. And not to mention until 2030, what you guys mapped out in your report, the changes are going to be absolutely enormous. Juliana, we're going to give you the last word in our discussion today to help us make sense of the report and put it in the context of everything that's been going on and what we've been talking about vis-a-vis the tariff war that is now underway. What do you want people to take away from this report in terms of how to understand the future of Chinese supply chains? I guess that this is an incredibly complicated question.

process and that it takes years, a lot of time and effort for these supply chains to reconfigure and that there are a lot of moving parts, a lot of countries involved. And I suppose that contrast is showing how the first U.S. trade war already had an effect in moving these supply chains, but nonetheless, China remains so dominant.

I think really needs to be seen in the perspective of what the U.S. has just started now and what it hopes to achieve, especially now that it's not just hit China, but a whole range of other countries.

Yeah. Well, the report is China and the Future of Global Supply Chains, even though it was written in February, two months before Liberation Day, still 100% relevant in terms of understanding where they've been and where they're going. No one has a complete grasp on what's happening because, as Agatha said, it's a violent process that is underway. I love that, Agatha. And it was written by Agatha Kratz and her team at Rhodium Group, Juliana Bouchot, and

And Lauren Piper, who's now at Princeton University. We've had two Princeton folks on this week alone. So go Tigers. I think you guys are the Tigers. Is that right? Okay. So we'll put links to the report in the show notes and to some of the other great research that Rhodium does as well. I want to thank all of you for joining us today to help us try and make sense of what's going on, even though it is incredibly difficult to do that. So Agatha, Juliana, and Lauren, thank you so much for your time today.

Thank you. Thank you, Eric. It was lovely to be with you. And we'll be back again with another edition of the China Global South podcast next week when Kobus and Zhihou are back from Nairobi. Until then, I'm Eric Olander. Thank you so much for listening and for watching.

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