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China-Western Tensions Reshaping Global Business

The move by major companies to reduce production in China has boosted inflation, but the western shift to ‘friendly shores’ has been positive for countries like India and Vietnam

Tension between China and the West is having severe impacts on global trade, causing inflation and a range of other impacts. Some countries will gain from these forces.
Trade groups in the US want more time to give feedback on tariffs announced in May by President Joe Biden (Reuters file image).


Geopolitical tension between China and the West has had a growing impact on global trade and investment in recent years.

Many multinational companies have begun to shift production to ‘more friendly’ countries to reduce risks of getting entangled in disputes over Hong Kong, Taiwan, the South China Sea and other concerns.

With the US imposing export controls on advanced tech items such as computer chips, plus concerns about spying and large-scale state subsidies, the ramifications for global markets have been significant.

Long-established supply chains have frayed, as Washington, Europe and Western states seek to loosen dependence on each other. That could help keep inflation and interest rates elevated.

Still, there are gains for emerging nations and tech giants on the right side of the power battle. Here’s how Western-China tensions are shaping markets.



US President Joe Biden is determined to bring manufacturing in strategic sectors such as electric vehicles and semiconductors back home.

TSMC, the world’s largest chipmaker, is moving some production to Germany and Japan to satisfy multinationals’ need to diversify supply chains from China.

Goldman Sachs research found that bringing production home may have inflationary repercussions, particularly if Western manufacturing does not ramp up quickly enough to offset declining imports.

“We built a globalised world for a reason, it was efficient and cheap,” Wouter Sturkenboom, chief investment strategist for EMEA and APAC at Northern Trust, said.

“If we unwind some of that, it will add cost.”

Prolonged US inflation also means rates staying higher for longer, boosting the dollar.

A stronger dollar can export inflation to resource-importing nations in Europe by forcing them to pay more for commodities priced in dollars.

Many central banks target 2% inflation; market gauges of traders’ long-term US and European inflation expectations are running higher.



Washington is pushing “friendshoring” – the idea of replacing China’s role in supply chains with friendly nations.

Research led by Harvard Business School’s Laura Alfaro identifies Vietnam and Mexico as the major beneficiaries of the US supply chain shift so far.

Mongolia is seeking US investment in mining rare earths, materials used in high-tech products such as smartphones. The Philippines is courting US infrastructure investment.

Anna Rosenberg, head of geopolitics at the Amundi Investment Institute, said Sino-US tensions, provide a “new lens” through which to analyse emerging markets’ growth prospects.



India is viewed as the most able to compete with China in low-cost, large-scale manufacturing. Its large, young population and a burgeoning middle class also creates opportunities for multinationals seeing less business in China.

Indian stocks have rallied 8% this year and the prospect of investor flows into the bond market just got a boost from JPMorgan’s plan to include India in a key government bond index next year.

“India is a very large opportunity,” said Christopher Rossbach, chief investment officer at asset manager J Stern. “The global companies we are invested in are working on it.”

India’s central bank forecasts that the economy will expand 6.5% this fiscal year, while China is expected to grow around 5% this year.

Barclays reckons that if India raises its annual economic growth closer to 8% over the next five years, it would be in a position to become the biggest contributor to global growth.



A China-West clash creates winners and losers on both sides.

The EU is investigating whether to impose punitive tariffs against Chinese electric vehicle imports it says benefit from excessive state subsidies.

US subsidies for domestic semiconductor manufacturing have boosted Intel’s shares. But the performance of big US tech stocks and global share indices are vulnerable to signs of Chinese retaliation.

Apple stock slid by more than 6% over two days in early September on reports that Beijing would ban government workers from using iPhones.

With China the world’s dominant buyer of luxury goods, Western fashion houses are also ensnared in politics. China’s top anti-corruption watchdog has vowed to eliminate what it calls the hedonism of Western elites. Chinese banks have told staff not to wear European luxury items at work.

“Higher levels of government scrutiny have started to weigh on the spending of more affluent (Chinese) consumers,” Barclays analysts Carole Madjo and Wendy Liu said in a note.

Luxury sector shares surged as China loosened Covid-19 restrictions in late 2022. Since then, with China’s economy in the doldrums and tensions with the West ratcheting up, they have slumped. European luxury stocks slid 16% in Q3.



A faltering economy and property market turmoil mean the bearish China investment case extends beyond politics.

But the prospect of continued tariffs and the hassle of navigating US restrictions on investing in Chinese technology does not help.

With China underperforming global stocks, investors are split on how to approach this market.

A JPMorgan survey of credit investors found that 40% were bearish on China, but almost the same proportion wanted to increase allocations.

“I’m actually warming to China because everyone hates (this market) so much,” said RW Baird vice chair of equities Patrick Spencer. “Market expectations are really severe and the reality is slightly better.”


  • Reuters with additional editing by Jim Pollard




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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years.


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