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The China-Vietnam-U.S. "Triangle": A Model For Globalization's Future?

Following the escalation of the Chinese-U.S. trade war in 2018, the "Made in China" label is not as ubiquitous as it once was. Southeast Asian economies are on the rise — but their growth doesn't necessarily threaten Chinese dominance.

Photo of a worker walking past two ships in a shipyard in Taizhou, China

A worker walks past ships in a yard in Taizhou, China

Lu Yang

There have been a flurry of reports recently in the Chinese media about the rise of Southeast Asian economies, particularly Vietnam's.

The question of whether Southeast Asia is about to replace China as the leading source of low-cost production is not new, and the "special trade corridor" between China, Southeast Asia and the U.S. became a popular subject again after the escalation of the China–U.S.trade war in 2018.

The many discussions of "supply chain relocation" for European and American companies often point to Southeast Asia as the first choice, while after the pandemic in 2020, some 60–70% of manufacturing companies in Zhejiang province in the east of China (the hub of the country's private economy) had said they would consider building factories in the neighboring Asian countries due to the rapid rise in domestic labor costs.

And now, there are more and more signs that Southeast Asia could be a good bet for companies as China faces issues both at home and abroad. But the larger picture reminds us that China and the West will very much need a middle ground in the future.

Unlike the Cold War scenario, even if China and the West are in fierce political opposition, their economic connection is unlikely to be completely broken in the short term as long as they do not enter a state of war.

Southeast Asia: a perfect middle ground

Despite the inertia after the last 40 years of globalization, we will not revert back to square one in the foreseeable future.

The entangled economic links between the world's top two economies are bound to be transferred in various forms to third countries, third parties or third regions. The flip side of the decoupling of China with the West will therefore be the rise of a large number of "middle ground" regions. The emergence of the China-Vietnam-U.S. trade triangle over the past few years shows that Southeast Asia is one such middle ground.

As an example, electro-mechanical products are an important export item for China, accounting for a large share of exports and perennially accounting for about a quarter of China's merchandise exports to the U.S. The outbreak of the trade war in 2018 and the imposition of heavy taxes on Chinese electro-mechanical products by the U.S. led to a continued decline in China's direct exports, which are still below 2018 levels.

Some of the Chinese products have been simply processed and repackaged in Vietnam for export.

Almost simultaneously, such exports from Vietnam to the U.S., and Chinese exports to Vietnam, have risen rapidly in parallel. Chinese exports last year to Vietnam in electro-mechanical products increased by $23.2 billion compared to 2018, while Vietnamese exports to the U.S. increased by $24.4 billion over the same period. At the same time, Chinese exports to the U.S. decreased by $21.5 billion.

What is happening here is likely that some of the Chinese products have been simply processed and repackaged in Vietnam for export to the U.S., but Vietnam still needs a lot of Chinese spare parts and semi-finished products in order to meet the sudden increase in U.S. orders.

The decline in Chinese exports to the U.S. is often accompanied by an increase in both Chinese exports to Southeast Asia and Southeast Asian exports to the U.S. This occurs in many sectors, particularly in those where the U.S. has imposed tariffs on China. The "Made in China" label has become "Made in Vietnam", but for many Chinese exporters, as long as there is a middle ground in Southeast Asia, the U.S tariffs are not fatal.

Of course, simple repackaging and labeling is difficult to sustain and is a gray area legally. The U.S. has invested a lot of resources in "anti-circumvention" investigations and enforcement, which is not a long-term solution for Chinese exporters. To truly tap into the potential of the Southeast Asian middle ground, Chinese companies must have a physical presence in Southeast Asia.

New meanings of "competition"

Workers on the docks of Jiangnan Shipyard in Shanghai

Ding Ting/Xinhua/ZUMA

Earlier this year, widespread economic stagnation could be seen in China. With multinational companies shutting down factories in China and relocating production lines to Southeast Asia, there were anxious rumblings in China about whether its status as the world's factory would be replaced by Southeast Asia. But are the export industries of China and Southeast Asia in competition or complementary? It could easily be argued that they are more complementary at present and will become even more so in future.

Depending on the stage of production, all goods could be classified into four categories: raw materials, intermediate goods (semi-finished products), capital goods (tools and equipment for production, such as lathes and cranes), and consumer goods. Using this classification, the composition of China-U.S. and Vietnam-U.S. trade is similar: the largest U.S. exports to both China and Vietnam are capital goods, accounting for around 40%.

Both China's and Vietnam's largest exports to the U.S. are consumer goods, accounting for around 50%. Therefore, from the perspective of the European and American markets, the trade roles of China and Vietnam mostly overlap, especially in some labor-intensive sectors such as clothing, footwear and hats. So, if we look at the question of "where do European and American imports come from?", the competitive relationship between China and Vietnam is clear.

Evolving supply chains

But we also need to look at "where China and Vietnam's exports are coming from." As in today's highly fragmented and refined division of labor in the value chain, a country's exports may contain a large number of raw materials, intermediate products from other countries, as well as economic added value.

A good example of this is the electro-mechanical products mentioned earlier. Although Vietnam has replaced part of China's share in the European and American markets, Chinese companies have endured limited losses due to the expansion of their exports to Vietnam. And more importantly, the value-added share of these intermediate products that Vietnam imports from China are likely to be not insignificant. So although the customs statistics for Vietnamese exports have increased significantly, the actual added value (often reflected in corporate profits) goes to the Chinese companies.

There is clearly a highly segmented division of labor in the supply chain between China and Southeast Asian countries: the higher value-added production chain is completed within China, exported to Southeast Asia for further processing in the form of intermediate products, and then exported back to China. Part of it becomes a final product for consumption or export in China, part of it returns to Southeast Asia for consumption and export, and part of it goes on to be exported elsewhere for further processing. In this dizzying network of supply chains, China and Southeast Asia are becoming the two most closely related nodes.

The future of the Chinese economy

Decoupling from the Western economy is a reality that the Chinese economy has to face. The globalization model from 30 years ago is not the "optimal solution" for the Chinese economy today, while a complete return to the low level of self-sufficiency that previously existed in China is clearly the worst solution that everyone wants to avoid.

So what is the best solution for China's economy? Southeast Asia offers a region that can act as a middle ground to maintain partial connectivity between China and the West, while at the same time providing scope for the transformation and upgrading of Chinese manufacturing with intermediate production networks and supply chain trade.

It's a repetition of what Hong Kong, Taiwanese, Japanese and South Korean companies once did in China.

Data on Chinese investment in Southeast Asia shows that a large number of Chinese manufacturing companies are flocking to the region. According to the Chinese Ministry of Commerce, China's direct investment in Southeast Asian countries was U.S. $16 billion in 2020. It is the largest outbound investment destination outside of Hong Kong and is the size of the E.U. and the U.S. combined. More importantly, unlike China's large investments in the real estate and entertainment sectors in Europe and the U.S., Chinese investments in the region flow heavily into manufacturing (40% of current year flows and 25% of historical stock).

These manufacturing capacities are dominated by Chinese capital, and while they tend to belong to Southeast Asia at a statistical level, bringing capital, employment and technology, they are just as closely linked to the Chinese economy.

The relationship developing today between China and Southeast Asia is a repetition of what Hong Kong, Taiwanese, Japanese and South Korean companies once did in China: building production capacity, sending managers, exporting intermediate products, relocating production capacity, integrating supply chains and exporting worldwide. It is perhaps not too much of an exaggeration to say that the future of the Chinese economy is in Southeast Asia.

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Inside Ralston College, Jordan Peterson's Quiet New Weapon In The Culture Wars

The Canadian-born psychologist Jordan B. Peterson is one of the most prominent opponents of what's been termed: left-wing cancel culture and "wokism." As part of his mission , he has founded Ralston College in Savannah, Georgia, a picturesque setting for a unique experiment that contrasts with his image of provocateur par excellence.

Photo of Canadian clinical psychologist Jordan B. Peterson greeting someone at Ralston College, Savannah

Jordan B. Peterson at Ralston College

Sandra Ward

SAVANNAH — Savannah is almost unbelievably beautiful. Fountains splash and babble in the well-tended front gardens of its town houses, which are straight out of Gone with the Wind. As you wander through its historic center, on sidewalks encrusted with oyster shells, past its countless parks, under the shadows cast by palm trees, magnolias and ancient oaks, it's as if you are walking back in time through centuries past.

Hidden behind two magnificent façades here is a sanctuary for people who want to travel even further back: to ancient Europe.

In this city of 147,000 in the U.S. state of Georgia, most locals have no idea what's inside this building. There is no sign – either on the wrought-iron gate to the front garden or on the entrance door – to suggest that this is the headquarters of a unique experiment. The motto of Ralston College, which was founded around a year ago, is "Free Speech is Life Itself."

The founder and rector is one of the best-known figures in America’s culture wars: Jordan B. Peterson. Since 2016, the Canadian psychologist has made a name for himself with his sharp-worded attacks on feminism and gender politics, becoming public enemy No. 1 for those in the left-wing progressive camp.

Provocation and polemics, Peterson is a master of these arts, with a long list of controversies — and 4.6 million followers on X (formerly Twitter), and whose YouTube videos have been viewed by millions. Last year on Twitter he commented on a photo of a plus-size swimsuit model that she was "not beautiful," adding that "no amount of authoritarian tolerance is going to change that."

A few years ago he sparked outrage with a tweet contesting the existence of "white privilege," the idea that all white people, whether they are aware of it or not, have unearned advantages. "There is nothing more racist," he said than this concept. He was even temporarily banned from the platform for an anti-trans tweet.

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