Not everyone loses in a trade war
How one order for 600 million socks confirms supply chain adaptability
By: John D’Angola / 19 June 2019
“Everyone loses in a trade war” says virtually every economist and pundit on tv. Simple yet foreboding, the warning is persuasive. But it is also fundamentally false.
Clearly, trade wars disrupt business as usual. But the truth is that trade wars do indeed have winners, both on a national and business level. And although the question of which nations will come out ahead long-term in the current US China trade war remains unclear, many manufacturers are clearly winning as they experience windfalls of new business.
One such winner is in Taiwan. A sock producer in Changhua County recently reported receiving a single order for 600 million socks. Initially planned to be sourced in Mainland China, the huge sock order was redirected to Taiwan following U.S. President Trump’s announcement that his administration would increase tariffs from 10 percent to 25 percent on US$200 billion worth of goods made in China.
“Although Taiwan may no longer be the cheapest, it still has strong production and distribution capabilities. The 300 million pairs of socks can be entirely eaten [produced] by Taiwan,” said Wei Ping-i, chairman of Taiwan Hosiery Manufacturers’ Association.
Other Taiwanese industry leaders agree: while Mainland China’s low labor cost and weak regulatory environment priced Taiwanese manufacturers out of the market for most consumer products decades ago, the new tariffs imposed on Mainland China by the Trump administration now make Taiwan a prime alternative location of production.
Of course Taiwanese manufacturers are not the only country reaping the rewards of the trade war. Indeed manufacturers throughout Asia, especially in Vietnam and Bangladesh, are seeing significant increases to their US-bound exports. Supply chains are evolving; it seems for every manufacturer hurt by the trade war, another benefits.
Companies who rely on outsourcing production to Mainland China have been vocal in their disapproval. Nike and Adidas recently published an open letter to the Trump administration warning increased costs would be passed on to consumers. But this argument falls a bit flat, as inflation has remained low, under 2% annualized, throughout the entirety of the current US-China trade war, suggesting that the Trump tariffs do not directly translate into a consumer tax.
Massive brands like Nike and Adidas have the resources to lobby Washington to implement their preferred policy. For everyone else, considering alternative supply chains is the correct play. Manufacturers like the sock producer in Taiwan have the quality, capacity and capability to compete.