China vs West: The Trade War and the Future of Made in China

[00:00:02]as drisking intensifies China's economy is in [Music] trouble is one country's losses another's gain we have doubled the growth in Revenue Mexico's new wave of growth comes out of tensions between the US and China great power competition is back in the Americas our hemisphere has been invaded by China and they are now the number one trading partner in the region number one trading partner in the region can China go back to business as usual I think that President X and China's leaders would like to believe that a better environment will compel companies to continue to invest in uh expanding their footprint in China the reality though I think is much more complicated is this the beginning of the end for maid in China there should be no one cheerleading for China to crash cuz that will be terrible for the global [Music] economy [Music] Sheen it's the world's largest fashion retailer with a valuation larger than Zara and H&M combined with its meteoric rise comes intense scrutiny in July 23 six American fashion influencers went on a sponsored trip to Sheen's factories in China their reviews of Sheen were glowing I think I went in there not expecting the best conditions for the for the workers but I was pleasantly surprised how clean it was a backlash [Music] ensued all six in influencers came under Fire for praising Sheen which has been accused of using forc labor in sing Jang and engaging in environmentally damaging practices Sheen joins other China founded companies like Tik Tok teu and Huawei in being subject to a special investigation by the US Congress with a focus on data security Sheen also followed the footsteps of Tik Tok and moved its Global head headquarters to Singapore Chinese government has no right to have the data taken from a Chinese company operating overseas if they want to take that they have to consult the host country first before they can do anything many people in Congress as far as they're concern anything China means the Chinese Communist party and therefore must be evil so my suspicion is simply being just registered in Singapore is not going to make an awful lot of difference in China National Security is also of great concern in March 2023 employees of mince group an American due diligence firm were arrested and investigated a month later Chinese authorities launched an investigation into Bane over similar transgressions the following month it was multi National research firm cap Vision who came under probe then in September nura Holdings in October it was [Music] foxcon all these cases unfolded as China expanded its counter Espionage law in July under the revised law the unauthorized obtaining of documents data materials and items related to National Security and interests can constitute a spying offense what actually is a regulation or a document that might be considered a state secret and that is not really defined and of course what we've seen increasingly in China is it suddenly stopped publishing data if it didn't look too favorable youth unemployment data stopped so if you now get hold of figures on youth unemployment was that something that was a state secret that you're now leaking you know where are the lines where are the barriers of what is acceptable and what is unacceptable these developments follow an order from Beijing to remove all foreign computer equipment and software in government offices by 2022 as well as a move to ban Tesla vehicles from some government compounds over worries about the car's cameras whether it's fashion social media business consultancies devices or electric vehicles the powers that be in both capitals believe there are links to National Security amidst all the tension a word entered the global lexicon in year 2023 drisking we're not looking to decouple from China we're looking to drisk and diversify our our relationship with China that means taking steps to diversify our supply chains and we're not so we're not dependent any one country for necessary product it means resisting economic coercion together encountering harmful practices that hurt our workers means protecting a narrow set of Advanced Technologies critical for our national security those elements are all agreed on by the G7 China does not buy that to the Chinese drisking and decoupling are the same thing it's psychologically fails the same you know either it's the the couple or it's the risk it's actually uh have the same impact of intimidate and also uh stop people going forward so if you single out China as a risk factor and want to dis risk of that that is really a big setback for the globalization as China has been the biggest contributor of global GDP growth uh for the last decade China contribut over 30% of global GDP growth and China is the largest trading Asia with 140 countries and China is the uh second largest economy in the world and so if you call for D risk from China which means we're calling for D risk for development calling for the risk for for the progress for the trade for the investment that's a very uh uh wrong message it was send the Chinese don't want uh decoupling and they don't want drisking they want things to go back to the way they were before where there was uh deep thick interdependence economically between both countries and there were fewer uh barriers to to trade between both countries and uh to accept that drisking is a relatively positive outcome in comparison to decoupling uh would be to concede uh that uh that this is the way that things will be going forward and I don't think the Chinese are yet at a point where where they're willing to celebrate that drisking is slightly better uh than decoupling why do some Western Nations feel compelled to D risk let's wind the clock back to the beginning of the pandemic 20120 as covid-19 spread Beijing slapped 20 billion Australian dollars worth of sanctions on Australian Goods like wine and lobsters this after canra called on the who to invest investigate the origins of the covid-19 pandemic a sign that Beijing will use its economic leverage to punish trading partners over political disputes the Ukraine war changed the security calculus in the world as China declared a No Limits friendship with Russia anxieties about China's signals towards Taiwan also increased for the US and some of its allies banned the sale of advanced semiconductors to China citing concerns about their military use China fired back clamping down on exports of two crucial Metals gallium and germanium needed to make semiconductors and later it curbed exports of graphite used to manual manufacture EVS over in the US in August 2023 Wall Street was issued a directive us investors are no longer allowed to invest in areas with sensitive Technologies and products like Ai and micro Electronics in China as drisking intensified Global Investors pull out over 210 billion US from Chinese stock and bond markets foreign investments in China become negative for the first time since 1998 with drisking becoming a buzzword in boardrooms China had a message in press rooms in China we've seen a focus on security on the one hand and then on the other hand we have these messages from Chinese leaders that it's business as usual how do we make sense of The Swinging of the pendulum between security and economic pragmatism this is a a really important issue to get our minds around because all nations in the world especially China and United States but all nations are becoming much more uh concerned about their National Security and figuring out how we square that with being able to engage with other nations in economic relations is extremely important China has gone the route as you say of emphasizing both National Security but also saying we want to continue to engage with in trade with the [Music] [Applause] world building up uh National military capability is not unwarranted and it is especially to be expected if you feel that other nations are looking to encircle and contain you you need to be able to defend yourself I think it's unfortunate that we're in this situation of a security dilemma where the weaponization on the part of one nation in attempting to protect itself makes other nations feel insecure and they have to build up their security capabilities as well it's a race to the bottom a kind of a prisoners dilemma Dynamic is not helpful to the prosperity of the world but that's the world we're in the engagement with economic exchange however continues to be different so China's view on National Security is by continuing to trade with the rest of the world because that's how it's become rich continue to trade promotes its National Security in November president C visited the [Applause] [Music] US [Music] May I think that President XI and China's leaders would like to believe that a better environment happier words between both leaders will compel companies to continue to invest in uh expanding their footprint in China the reality though I think is much more complicated I think that the the trend lines are already pretty far along in terms of companies deciding that uh that their interest are better served by having more diversification and nice words and an improved atmosphere between United States in China isn't going to alter that overall [Music] trajectory is the m keep the world on track making Mone M money every day if you're lucky then the money make a will big stack then the money money money [Music] the amidst all the drisking trends Mexico is having a manufacturing Renaissance our company has grown in The Last 5 Years 25% we have doubled the growth in Revenue uh in the same period of Time 5 [Music] years [Music] creation Technologies is an original equipment manufacturer that has Fortune 500 companies as its customers many of those customers have shifted some parts of their manufacturing operations from China to Mexico it's a trend that began during the Trump presidency when tariffs were slapped on Chinese exports to the us some of the customer based in the US have moved out of China due to the tariffs in the next 6 months we're going to be adding some lines and expanding our capacity that's going to support our plans for 2024 and 2025 growth Mexico is part of the North American Free Trade Agreement which means goods made in Mexico enter the US tariff free collectron which helps foreign companies relocate to Mexico explains why foreign investment is pouring into the country we have gone from a population or had gone of 8,000 people to 10,000 people and yes we have brought uh four companies U from Asia well it started back in 2018 with a tariff jump between China and the United States and it continue with the unfortunate situation that we have with the pandemic with covid-19 and of course it has uh escalated to the conflict between Russia and and Ukraine all of this has led companies to pursue a policy of friend Shoring meaning locating in friendly countries or nearshoring which means to produce closer to where one's consumers are well companies don't make a decision to uh transfer their operation overnight you know most companies take anywhere between 6 months to two year up to 18 months to make a decision to establish aage in Mexico it helps that costs in Mexico are competitive and the workforce is skilled we are fortunate to be in an area with uh a lot of universities around and highly talented and skills uh Workforce they have transferred some of their operations they have had in natia Back to the Mexican operations for years America's top trading partner has been China that changed in 2023 Mexico now takes the top spot and it's not just American companies moving to Mexico Chinese companies are also coming here mainly to be closer to their us customers in toron not far from the US border construction on a new Factory a Chinese investment is nearly complete when completed this will be the manufacturing site of Milwaukee a Chinese tool and Appliance conglomerate [Music] in neighboring City montere there are more than 10 brands from China that have been set up and are manufacturing products from home appliances to Auto Parts Chinese Enterprises have poured 8.29 billion into Mexico based projects since 2018 the year the trade war with the US started some of these companies include Auto Parts maker ningo Shish group and Tall group home appliance maker high sense bethl automotive and Furnishing company cuka Chinese companies are setting up or forming joint ventures in other countries Vietnam is one clear case as well as Mexico and then it's using those countries to become the exporter into the US yeah Mexico's exports to the US are up by a lot since 2018 or 19 the increase in exports of many of these economies right now are driven actually by increased imports from China so in effect there there seems to be triangular trade which really doesn't look like a lot of der risking right like it's it's just the same trade happens more indirect and less transparent and I don't think this is you know sustainable if if if an economy really wants to do risk they they will try to shut down this channel too that's the one thing the other thing is that what we already see is that it drives up prices quite a bit these big Investments made by Chinese companies have not gone unnoticed in the United States today I am here to announce the great powered competition is back in the Americas the hammer and the sickle has returned in full force and the Chinese Communist party's first order of businesses to own Latin America our backyard China has secured a presence in Latin America through what we could call a trojan horse strategy to become the number one trading partner in our region let me repeat it our hemisphere has been invaded by China and they are now the number one trading partner in the region number one trading partner in the region 20 years ago they traded 12 billion 20 years later 20 years later last year they hit 4 $450 billion that is a 3,000% increase 3,000% increase you can turn around the question and say well what is the United States doing in terms of its relations with countries in Latin America and Central America and there what you hear in Washington or I'm not a Washington Insider but what I hear you know emanating out of Washington is a concern primarily about immigration and drugs that tends to be what consumes the oxygen uh coming out uh of Washington rather than the question of we need we really need to reinforce our economic relations with the region it's mentioned but it doesn't get as much airpl as other areas So within those circumstances it's hardly surprising that countries in Latin America or Central America are going to turn to a country that's willing to invest and that is willing to trade whether it's us companies moving out of China or Chinese companies moving out of China One thing is clear manufacturing is on the March HP has started to shift part of its production of laptops from its main production base in Chongqing China to Thailand and Mexico Dell is doing the same Apple shifted part of its production to India and Japan's Mitsubishi Motors also ended production in China with all the talk on drisking it's easy to forget that it was the Chinese government that encouraged its companies to set up factories overseas 10 years ago in a grand scheme known as the belt and Road [Music] [Music] initiative ready just another morning at the Haan shoe factory in Ethiopia this was set up 10 years ago under the Bel and Road Banner today it has an annual production capacity of 3 million pairs of shoes for export making it one one of the largest export Enterprises in Ethiopia for under the Bel and Road initiative thousands of Chinese companies went overseas in search of lower land costs and wages this was the first round of supply chain restructuring long before drisking was a [Music] buzzword [Music] there have been several large scale Manufacturing offshoring in history in the 1950s the US moved its manufacturing to Germany and Japan in the 60s and 70s more developed countries moved manufacturing to other still developing areas like Taiwan South Korea Singapore and Hong Kong in the80s the offshoring trend reached China you can take him apart every gear and nut but you can put him together and build him up wind him go on as long as machines are movable offshoring will likely continue today China is also moving towards a more service oriented industry like all the G7 countries [Music] despite geopolitical tensions some Titans of American industry are doubling down on their investments in China this is Tesla's gigafactory in Shanghai which started operations in 2018 now a new Mammoth Factory is under construction next to the existing Factory this footage from September 2023 shows the scale of Tesla's new plant and it won't just be manufacturing cars in April 2023 Tesla Inked a deal with Shanghai to manufacture its Mega packs megapack is a powerful battery that provides energy storage and support helping to stabilize the grid and prevent [Music] outages large projects like these would not have been possible without the support of the Chinese government when China reopened after covid in early 2023 Elon Musk met top officials and was quoted by Chinese press as saying he was fully confident in the Chinese market Elon had um stated a goal of selling 20 million Vehicles by 2030 for Tesla a large part of that Lynch pin strategy is to sell into the China Market because it's the largest market in the world again more context about 22 million cars were sold in China in 2022 about 11 in in in Europe and 14 135 million in the United States and so if Tesla was to get 20% market share in the China Market they'd be at over 4 million units that gets them well on their way to that 20 million number like Tesla many other companies from the US and Europe depend crucially on China for a large portion of their [Music] sales for no surprise then that some big brand names oppose Dr risking and gentlemen I firmly believe that the future of modernization should be inclusive and not exclusive be based on cooperation and not decoupling a return to division and protectionism will only make recovery more difficult while threatening our abilities to solve real challenges like climate change German Chemical Company BASF is spending 10 billion EUR on a new chemical production complex in China and Volkswagen is also reinforcing its presence in the Chinese car market in 2023 it announced plans to invest more than1 billion on its New China Center a lot of manufacturing use China chip labor to produce the product and sell the world but now as Chin's middle class is rising we have uh you know per capita of GDP already uh reached the 13,000 US Dollars almost reached developed country status I think that uh the multinational realize now that China has a huge potential uh for example in a developed country like us 1,000 population may have 800 cars you know I mean per capita but in China probably is only 200 so there's a huge W for China to grow it foreign companies are in a pickle on the one hand their governments have warned them about security risk on the other hand who wants to say no to revenue a survey conducted by the American Chamber of Commerce in China shed some light the survey found that 31% of respondents are increasing investments in China in 2023 compared to the year 2022 22% of respondents are decreasing them and 40% are redirecting or planning to redirect Investments originally planned for China mainly toward Southeast [Music] Asia let's put a little bit of perspective on this so if China only grows at 4 and a half% this year and does that for the next four years in that time it will have grown one IND India and India which is 1 and a half billion people producing things GDP China can grow that in 4 years every year it grows almost two thailands every three years it grows two Indonesians so the scale at which China is growing the scale which it operates presents lots of New Market opportunities now obviously 4 and half% is not as good as 8% it's not as good at 12% all of that is right and the exit and the signs of lack of confidence are things to be mindful of but I think we need to not rush into a unanimous judgment that the Chinese economy has gone [Music] under in the race to become the world's largest car exporter China is now number one in 2023 it's car exports overtook those from Japan or Germany and most of the cars are these electric vehicles or EVS China accounted for just 4.2% of global EV exports 6 Years Ago by 2022 it became 35% Japan by contrast was the largest exporter of EVS in 2018 with a 24.5% share in 2022 its share plummeted to 99.3% my first job was at a factory in in uh Michigan orian Assembly Plant and we built five cars three different trims so effectively 18 different cars every day about a half a million cars a year and so I was grounded in the quality reliability how things sounded uh how uh things should fit together when I first landed in Beijing in 2009 I got into a byd and it was not great it was pretty bad the doors were paper thin you could hear everything the fit and finish of the Interiors weren't great I was in Shanghai in April and visited byd the difference between 2009 and uh and today is night and day you come to Shanghai Auto Show and you see all of the traffic at the Chinese automakers booths I was at the Audi booth and one of my favorite beautiful cars the the rron the RS rron and it took me less than 10 seconds to wait for somebody and then I got in it myself then you go over to Zer and they have just launched a ziker x which is a small little car that I think is going to be less than 300,000 R&B or less than $40,000 in the China Market I waited 10 minutes for this little car because there were so many people that wanted to see it and so the management of these European automakers also saw this and then in disbelief they got into the vehicles themselves they closed the door they heard the sound you know that matches what they're traditionally able to do and then looked at the te technology on the on the in uh on the uh in instrument panel and the infotainment system and um Jaws were dropped I think there is a lot of disbelief a lot of shock uh but a bit of fear you know director level manager level now they touch feel see these cars and they're like wow um we are in trouble when it comes to clean tech cars the world biggest Auto brands are now playing catchup China is the place to be what super power makes to a great developer it's the ability to look around the corners but this is not enough to be successful in China you need to be where the big things happen you need to team up with a fastest and smartest planes say the world most advanced country in terms of elation riding on the back of growing carbon Consciousness China's EV exports are set to double in 2023 demand in Europe has skyrocketed in countries like Norway where nearly 2/3 of all cars sold are EVS with all that talk of drisking China's EV sales demonstrate that there are some products where made in China is still indispensable e byd secret sauce has much to do with its batteries its blade Battery Technology is touted to be safer and more efficient it wasn't always Rosy for Ev makers in China Neo xun and Lee Auto these EV companies were set up around 2014 and 2015 and they were struggling right wasn't it just in 2020 that Neo nearly went bankrupt so how did these Chinese EV companies manage to turn around their fortunes so fast parl you raised a great Point uh in 2009 the Chinese government decided that they were going to focus on the battery sector and the EV sector as um sectors because uh the Chinese sector is manufacturing is a pillar of one of uh of of Industry so EV manufacturing battery cell manufacturing they looked at is going to be very important in the future and they were absolutely right so in starting in 2009 they created subsidies for Ev purchase they also gave uh rebates for uh manufacturers that were building electric vehicles and so through perseverance through patience through a lot of capital um you know rumor or forecast say between 60 And1 billion doll between 2009 and today being invested in those sectors has created what uh we see today in in 2023 um the EV sector in China will get to about 89 million units okay from virtually zero in 2014 2015 when Neo started and so uh Neo's particular story is interesting because they really leaned into to design customer engagement and and premium uh in the early years and that almost push them into bankruptcy if it wasn't for the hu government uh and so the hu government wrote them a couple billion dollar check and they they've been able to kind of weather that storm uh now they have six seven products in the market it is no secret that government policy was crucial to the growth of Chinese EV [Music] companies but the spectacular growth of these companies is prompting other governments to push back thank you very much we have not forgotten how China's unfair Trade Practices affected our solar industry many young businesses were pushed out by heavily subsidized Chinese competitors pioneer ing companies had to file for bankruptcies promising talents when searching for Fortune abroad this is why fairness in the global economy is so important because it affects lives and livelihoods entire Industries and communities depend on it so we have to be clear eyed about the risks we Face take the electric vehicle set it is a crucial industry for the clean economy with a huge potential in Europe but Global markets are now flooded with cheaper Chinese electric cars and their price is kept artificially Low by huge State subsidies this is distorting our market so I can announce today that the commission commission is launching an anti-subsidy investigation into electric vehicles coming from [Applause] [Music] China Europe is open to competition but not for race to the bottom drisk not decouple fore on the same day in what was widely seen as a retaliatory move China announced it would slap anti-subsidy duties on the eu's potato starch Imports for 5 years bear in mind that the European has a huge number of car selling in China you know all the largest European auto makers China is the largest auto market so we don't want to see a trade War happening and we don't want to see see this really uh impact not only Chinese company but also European uh companies if there is any real protectionism of of the European market from China EV Inc there could be repercussions in the Chinese market for the European Brands yeah because if China really wanted to hit back they could cause a lot of hurt to European car manufacturers the likes of Porsche Mercedes and BMW yeah China control 70% of the processes of making solar at least 50% of the processes of making wi turbines they have the largest ev companies in the world and they also Control batteries to meet climate change goals do you think it's even possible for Western countries to Der risk from China Green Tech there's a race now to try and get to a point where our uh handle on the global climate change does not go past the irretrievable point point if we go past 2 and 1 half% 3% it might be that we will never be able to recover so we need to think about that resilience but the race is can we do that if we're serious about drisking and decoupling in a way that doesn't uh uh breach that and I think my sense from looking at how the world has been able to manage this transition is it'll be very expensive if not impossible so this is an imperative for the world to actually make friends and be nice if you want to save the planet you cannot go on about somebody's uh values being different from yours save that for some other time uh we need to work together on this the United States should do whatever it can to accelerate the transition to Renewables and green energy and the simple reality is that much of the leading technology in the world resides in China and so if the United States wants to move forward as quickly as possible then it will need to do so in part parip with [Music] China