ON THE COVER

Donald Trump’s appetite for tariffs shows no sign of HONG KONG Every time American
lawmakers tried to crack down on cheap
fading. In the space of six months, the U.S. president Chinese aluminum over the last decade,
has imposed duties on more than $250 billion worth of the leaders of China Zhongwang Holdings
Chinese goods, around half the value of the country’s seemed to find a way to keep their prod-
ucts flowing into the U.S.

SINKING
total exports to the U.S. When Washington imposed “anti-
Beijing has responded swiftly with tariffs of its own. dumping” rules on the aluminum it pro-
This tit-for-tat exchange has left businesses fearing duced for window and door frames in
2009, the company began exporting an-
that worse is yet to come.

OR
other product that wasn’t covered by
But the trade war is not affecting all companies the regulations. After the U.S. clamped
equally. While some companies are scrambling to down on Chinese metal producers again
in 2016, the company bought Germany’s
dodge tariffs, others are finding unexpected Aluminiumwerk Unna and began ship-

SWIMMING?
opportunities for new business. ping products to America from there.
In this report, we look at the winners and losers that But China Zhongwang finally ran out
of options on June 1, when the Trump
are emerging as the tariffs -- and uncertainty administration’s 10% tariff on imports of
-- continue to mount. aluminum products went into full effect.
“We ceased almost all our exports to the
KENJI KAWASE Nikkei Asian Review chief business news correspondent
U.S.,” managing director Amanda Xu Jing
told the Nikkei Asian Review on Aug. 27.
The company, which remains the world’s
second-largest aluminum extrusion prod-
ucts company, is now looking to make
up for lost U.S. business by expanding in
Europe and at home.
The Trump administration’s tariffs on
steel and aluminum were the first big
blast in his trade war, and they have al-
ready shot through the global economy.
They have lifted the fortunes of U.S. pro-
ducers of the metals, as President Donald
Trump had hoped, while hurting foreign
competitors like China Zhongwang. As a
lllustrations by Eric Chow

Nikkei Asian Review - Special excerpt from Sept. 24-30, 2018 Print edition. Nikkei Inc. No reproduction without permission.
 ON THE COVER

result, many products that use steel and trade toward alternative suppliers and customers,” Tit for tat: U.S.-China tariffs so far U.S. China Aug. 23 U.S. imposes Sept. 7 Trump tells
aluminum -- from Toyota cars to cans of said David Hummels, dean and profes- 25% tariff on $16 billion reporters an additional
Coca-Cola -- are likely to cost more. sor of economics at Purdue University’s worth of Chinese goods, $267 billion worth
Mar. 23 U.S. imposes 10% tariff on July 10 U.S. announces plans China responds in kind of Chinese imports
Now comes a far bigger blast: Trump an- Krannert School of Management. “I be-
aluminum and 25% tariff on steel, with for 10% tariff on $200 billion could be targeted
nounced on Sept. 17 that he intended to impose lieve these effects will be much larger than temporary exemptions for some countries worth of Chinese goods
10% tariffs on $200 billion worth of Chinese goods, which those seen in the aftermath of disasters such
would rise to 25% by the start of 2019. He also said he was pre- as Fukushima.”

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ne

g.

pt
ay
r.

ly
pared to “immediately” slap tariffs on all of China’s remaining A day after Trump’s announcement, Fang Xinghai, vice chair-

Ap

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Ju

exports to the U.S. -- amounting to $267 billion of goods -- if
Beijing “takes retaliatory action.”
China did just that, imposing 5% and 10% levies on $60 bil-
lion worth of American goods. “In order to safeguard our legit-
imate rights, our interests and the global free trade order, China
will have to counter the developments,” China’s Ministry of
Commerce said in a Sept. 18 statement.
The latest round of escalation is large enough to rattle global
trade, raise prices on a much wider array of products and reshape
complicated supply networks, experts say. China Zhongwang’s
experience could be a sign of things to come for a swath of
Chinese manufacturers.
“The immediate impact on trade volumes will be substan-
tial, [with] declines in the total value of trade and a diversion of
Shipping companies are among
those worried about a potential
slowdown in global trade.
Ju
M
man of the China Securities Regulatory Commission, said China
is “very much fully prepared” for the most severe punitive tariffs
Apr. 2 China imposes
on its products. The impact on China’s growth would be limited retaliatory tariffs of June 1 Exemptions July 6 U.S. imposes Aug. 1 Proposal Sept. 18 U.S. imposes 10% tariff on
to about 0.7%, he said. 15-25% on $3 billion for aluminum and 25% tariff on $34 made to raise $200 billion worth of Chinese goods,
Speaking after the local stock market marked a fresh four-year worth of U.S. goods steel tariffs expire billion worth of planned 10% effective Sept. 24; to be raised to 25%
low on Sept. 17, he emphasized that there is “completely no sys- Chinese goods, China tariffs to 25% in 2019; China retaliates with tariffs of
responds in kind 5-10% on $60 billion worth of U.S. goods
temic risk” in China. The new U.S. tariff announcement had “poi-
Source: Media reports
soned” the atmosphere for negotiations, he added.
Already, the prospect of further tariffs is prompting compa-
nies to move more factories from China to lower-cost countries of this business will move to Southeast “In order to safeguard our “We receive a lot of references from
in Asia. About 30% of American companies operating in China Asia or the Indian subcontinent, while companies from other countries, especially
say they are looking to buy components or build products out- only 6% said they would consider relo-
legitimate rights, our from the EU, China and even the U.S.,”
side of both the U.S. and China to avoid tariffs, according to a cating to the U.S. interests and the global he said in a Sept. 12 interview. “It’s not
recent survey by AmCham China and AmCham Shanghai. Most Many Asian companies say the trade free trade order, China will only garments,” he said, noting growth in
war has prompted them to accelerate a have to counter the orders for travel bags and goods, shoes
shift out of China. Li & Fung, a major sup- and bicycles.
plier of clothes and household goods to re-
developments” This production shift seems to be hap-
tailers including Walmart and Macy’s, said -- China’s Ministry of Commerce pening even faster in the high-tech sec-
its procurement from China has already tor. Delta Electronics, a Taiwan-based
fallen to 49% of its goods, down from 54% provider of power components for
in 2016. Spencer Fung, chief executive, said he expects the trend Apple’s iPhones and MacBooks, said it is buying an affili-
to continue. ate, Delta Electronics (Thailand), to secure better access to
“China still has a role to play and cannot be replaced,” Fung
said. “Clients are not moving out of China all of a sudden, but
they have been planning it and the trade war is just one of Afflicted by uncertainty?
many triggers.” Nikkei Purchasing Managers’ Index for August
His company now sources apparel from countries including
July Aug. Whole economy Services Manufacturing
Bangladesh, Vietnam, India, Pakistan and the Philippines, while
footwear comes from Vietnam, India, Indonesia and Europe. 46 47 48 49 50 51 52 53 54 55 56
“There is a trend to be less dependent on China, and [we are] al- Myanmar
ways advising clients not to put all eggs in one basket,” Fung said. Hong Kong
Eclat Textile, a leading apparel supplier to Nike, Adidas, South Korea
Malaysia
Under Armour, Lululemon and others, is attracting new busi-
Thailand
ness precisely because it no longer produces goods in China. The
ASEAN
Taiwanese company pulled out of China entirely in late 2016
Indonesia
in favor of Vietnam and Cambodia, and lately it has been field- Philippines
ing calls from more customers looking to avoid the risks of the Japan
trade war. India
Officials in Cambodia, where about 630,000 workers are em- Japan
ployed in the garment industry, say the country is benefiting from Singapore
Akira Kodaka

the trade war escalation. Commerce Minister Sorasak Pan told Taiwan
Nikkei that the ripple effects of Trump’s policies are “probably India
better for us,” as companies shift out of China. Vietnam Contraction Expansion

Nikkei Asian Review - Special excerpt from Sept. 24-30, 2018 Print edition. Nikkei Inc. No reproduction without permission.
 ON THE COVER

manufacturing bases in that country, as well as India and FROM A FLURRY OF TARIFFS, Weathering the war? Projected growth in global trade
Slovakia. “The geopolitical environment is packed with uncer-
FOUR BROAD IMPACTS UNEXPECTED OPPORTUNITIES (in percent)
tainties as the trade war between the U.S. and China has begun,” The scramble to find suppliers outside of China is also producing 5
said Delta Chairman Yancey Hai. “The first wave of the $34 bil- winners. Tensions between the world’s two biggest economies
lion tariff imposition from the U.S. has already affected Delta.” MOVING OUT are benefitting third countries in other ways, too.
Trade tensions have put the gas on a simmering trend: the 4
Another key iPhone assembler, Taiwan’s Pegatron, is also
relocation of production from China to other parts of the world.
mulling alternative manufacturing locations outside the
3
mainland, including in Taiwan, Mexico, the Czech Republic
and India. Apple Watch and MacBook manufacturer Quanta
Global Unichip Corp. Eclat Textile 2
Computer said it is prepared if major clients decide they want to
make products outside of China to avoid tariffs. Smart watches Advantech Giant Taiwan Taiwan
Taiwan Taiwan The chip design service The apparel supplier said it
were among the 300 products that were dropped from the list of 1
provider said it has seen more has received more order
The world’s No. 1 industrial PC Giant, the world’s largest
products to be affected by the latest Trump tariffs. maker said it will add final bicycle maker, plans to
interest from Chinese inquiries from customers
companies since trade looking to minimize their trade
“We have several locations outside China for us to expand to assembly lines in the state expand production to tensions began to escalate. war-related risks.
0
2012 ’13 ’14 ’15 ’16 ’17 ’18* ’19*
meet temporary needs if the trade battle continues to escalate,” a of Illinois and open more sales Eastern Europe to diversify
offices across the U.S. from China. Data for merchandise trade *Projection Source: WTO
Quanta official told Nikkei.
Moving production lines is difficult, but the trade war threat
has been good for businesses that help companies set up their
supply chains. Kerry Logistics Network, a Hong Kong company celed a route connecting China and the U.S. in August “after
with an Asia-wide network, is benefiting from the shift in pro- considering the overall return of the U.S. route,” Wang
Li & Fung Inventec Olam International Hindalco Industries Haimin, general manager of the Shanghai-based company,
duction away from China. The trend became apparent in 2016
Hong Kong Taiwan Singapore India
as mainland wages rose, but the trade war has “accelerated the said recently. In addition, Wang said that “about 10% of the
”There is a trend to be less The AirPods assembler said The agribusiness conglomerate The world’s largest aluminum
speed,” said Group Managing Director William Ma Wing-kai. dependent on China, and [we are] on Aug. 14 it will ship increased almond shipments roller bought U.S. aluminum cargo volume would be affected” by the 25% tariff that is
The shift is apparent in companies that make electronics, ap- always advising clients not to put semifinished goods from from Australia to China to ”the processor Aleris for $2.6 billion slated to go into effect in January 2019.
parel, household items, toys and more. “The U.S. buyers are ask- all eggs in one basket,” said CEO Shanghai to facilities highest levels” in the first half in July, after the U.S. blocked a For Sinotrans Shipping, whose main routes connect Japan,
Spencer Fung. The company outside of China for final of 2018. It also significantly prior deal for a China
ing for a solution. Otherwise, they have to pay the tariff,” said Ma. procures 49% of its goods in assembly if the trade boosted soybean shipments Zhongwang Holdings affiliate South Korea, Taiwan and Europe, the impact is not as severe
Riding on this trend, the company’s turnover for the first half China, down from 54% in 2016. dispute escalates. from Brazil to China. to buy Aleris. as at Cosco. Nevertheless, Chairman Su Xingang told reporters
of the year increased by 27% to 17.46 billion Hong Kong dollars that he is wary of an escalation and is keeping a close watch
($2.22 billion), while its net profit jumped by 20% to $948 million. on the situation. “If the impact influences the global economy
“We are one of the beneficiaries” of the trade war, Ma said. and causes growth to decelerate, that will definitely have a rel-
A DIRECT HIT INDIRECT IMPACTS atively substantial impact on the transport sector as well,” he
A “LOSE-LOSE SITUATION” The flow of cargo ships -- a For these companies, the added cost of the tariffs For many, uncertainty and potential damage said. “Our industry does not wish for a trade war. Trade war is
is already proving a headache. to growth are the big concerns.
widely-watched barometer of global trade -- is also begin- a lose-lose situation.”
ning to shift due to the China-U.S. tensions. Cosco Shipping Madhavi Bokil, vice president and senior analyst at Moody’s
Holdings, the world’s third-largest shipping company, can- Investors Service, says the world economy will not really feel the
impact of the trade war until next year. He added that the possi-
Delta Toyota WH Sinotrans Asustek Cathay bility that trade tensions could derail global growth is now “more
Electronics Motor Group Shipping Computer Pacific likely than a few months ago.”
Taiwan Japan China Taiwan Taiwan Hong Kong Another major front in the trade war -- agricultural prod-
”The first wave Toyota says The impact has been If growth suffers ”The volatile The airline is ucts -- is also creating both winners and losers in Asia. Olam
of the $34 billion higher U.S. auto ”significant in every due to trade currency exchange watching ”how tariffs International, the Singapore-based agribusiness company, has
tariff imposition tariffs would add regard,” said Kenneth tensions so will makes it extremely and currency seen a big boost thanks to a significant increase in soybean
from the U.S. has about $6,000 to Sullivan, president the transport difficult to quote movements could
already affected the cost of each and CEO of U.S. pork sector, Chairman retail prices in local impact demand for shipments from Brazil to China, which placed a tariff on
Delta,” Chairman car. If exports producer Smithfield, Su Xingang said markets,” Asustek travel, and our U.S. soybeans. Olam also increased almond shipments from
Yancey Hai said from Japan are which is owned by on Aug. 10. ”Our Chief Financial revenues and cost,” Australia to China to the “highest levels” during the first
on July 31. His unchanged Chinese meat and industry does Officer Nick Wu said Chairman John
company supplies from last year food processor WH not wish for a on Aug. 10. ”The Slosar said, adding half of the year, group CEO Sunny Verghese said in August.
U.S. President Donald power at 700,000 units, Group. Higher tariffs trade war. Trade trade uncertainty that ”there’s no Beijing imposed a tariff on almonds from America, the world’s
Trump has imposed tariffs components for this would on U.S. agricultural war is a lose-lose also dims the doubt that the largest exporter of the nuts.
on hundreds of billions Apple’s iPhones amount to products have situation.” market demand potential impact on
and MacBook. $4.2 billion. hindered the group’s for consumer our businesses could Olam was active in sourcing soybeans from Brazil since be-
of dollars worth of Chinese
Reuters

goods since March. exports to China. electronics goods.” be significant.” fore the China-U.S. trade war erupted, so it has “been able to
capitalize on some opportunities” to increase the volume very

Nikkei Asian Review - Special excerpt from Sept. 24-30, 2018 Print edition. Nikkei Inc. No reproduction without permission.
 ON THE COVER
quickly, President and Chief Financial Officer
N. Muthukumar said.
But other global food companies are facing
uncertainty, including WH Group, the owner
of the biggest pork producers of both coun-
tries -- Smithfield in the U.S. and Shuanghui
in China.
The retaliatory tariffs China placed on U.S. agricultural prod-
ucts have hindered exports of American pork to China, where
its factories package products using the meat. Pork exports from
the U.S. to China declined 20% to 30% during the first half of the
year, but total volume stayed flat, as Smithfield increased exports
to other destinations including South Korea, Japan and Mexico.
When WH Group paid $4.7 billion in 2013 to acquire Smithfield, a
Virginia-based company that owns brands such as Armour, part
of the rationale was to increase U.S. exports of pork to China.
“If the U.S.-China trade conflict continues, we will accelerate
the pace of adjusting our trade portfolio for the U.S. unit to miti-
gate the impact,” Chairman Wan Long at WH Group told report-
ers on Aug. 14.
But Kenneth Sullivan, president and CEO of Smithfield, said
the impact of trade issues has been “significant in every regard.”
Anyone
but America
China woos ASEAN, Russia and
Japan as the trade war escalates
KENJI KAWASE
Nikkei Asian Review chief business news correspondent
Chinese President Xi Jinping arrives
in Russia to attend the Eastern
Economic Forum on Sept. 11.
The conflict has already dragged on longer
than the company anticipated and has become
more complicated in the U.S. after Mexican
authorities imposed tariffs on its products,
he said.
THWARTED PLANS, COSTLY CANS As the
Trump administration was squeezing China Zhongwang out of
the U.S. market this year, it was also helping one of the Chinese
company’s rivals gain a beachhead in America.
In 2017, a deal that a China Zhongwang affiliate had struck
to buy an Ohio-based aluminum company called Aleris was
blocked by the U.S. on national security grounds. Less than
a year later, however, American officials gave a swift green
light to the acquisition of Aleris by an Indian rival, Hindalco
Industries, for $2.6 billion. Xu of Zhongwang declined to com-
ment on the Hindalco-Aleris deal, but noted that her company
has since “changed the strategy.”
Other Indian businesses are moving into U.S. steel as well. JSW
Getty Images
Steel, the country’s largest steelmaker, will invest up to $500 mil-
lion to build a plant in Ohio rather than expanding its production
capacity back home. The decision followed another $500 million
NANNING, China As U.S. President Donald Trump prepared
a major escalation of his trade battle, China’s leaders were
engaging in a charm offensive meant to keep the country’s
friends close -- and pull its rivals closer.
Vice Premier Han Zheng, one of the most powerful members
of Beijing’s political machine, opened an annual gathering of
officials and business people from the Association of
Southeast Asian Nations on Sept. 12 by saying their
relationship with China could be an “exemplary model of
common destiny of mankind.”
He also appeared eager to dispel growing criticism that
China’s aid -- sometimes called “debt diplomacy” -- only
benefits itself.
“China welcomes ASEAN countries to get on the express
train of Chinese economic
development and is eager to
share the fruits,” he said at the
meeting, held in the southwestern
city of Nanning. Among the guests
was Prime Minister Hun Sen of
Cambodia, who has developed
deep ties with China.
The focus on ASEAN makes
Reuters
sense: The group represents China’s
third largest trading partner, only
investment decision into a Texas plant in March.
“The Trump administration was the driver behind giving us in
the U.S. the ability to compete for capital,” JSW Steel USA CEO
John Hritz told the Fox Business Network in June. “It’s what the
president did ... about making a fair playing field regarding stop-
ping the dumping of steel from countries that were dumping ille-
gally,” Hritz said, mainly referring to China.
While cutting supplies from abroad may have boosted U.S.
aluminum manufacturers, the ripple effect is felt elsewhere -- in-
cluding with American consumers. Coca-Cola, for one, said this
Coca Cola says it will raise
soda prices in North
America to offset the rise
in metal prices caused
by Trump’s tariffs.
after the EU and the U.S. It accounts for 12% of China’s total
trade, but it grew by 19% during the first eight months of
this year.
While Han was entertaining China’s guests from the south,
President Xi Jinping headed north to Vladivostok to attend
the Eastern Economic Forum hosted by Russian President
Vladimir Putin.
Xi’s first visit to Putin’s pet event reinforced a message
that he was eager to enhance ties with China’s neighbors
in the Russian Far East. With Western sanctions still isolating
Russia four years after its annexation of Crimea, Xi is reaching
out to Putin.
Russia ranks 13th among China’s trading partners, but the
trade value has grown by 26% this year so far, outpacing the
13% increase with the EU and the U.S.
During his visit to Vladivostok, Xi also met a leader he
has had a frostier relationship with: Japanese Prime Minister
Shinzo Abe. “We have a common understanding to always
develop Sino-Japanese relationship,” Xi said, wearing a rare
smile. Japan has been an easy punching bag for the Chinese
leadership when it wants to divert attention from problems
at home, but at this stage, Xi seems to see value in
befriending Tokyo.
Just a week before the Russia meeting, Xi invited African
leaders from 53 countries to Beijing and pledged $60 billion
Nikkei Asian Review - Special excerpt from Sept. 24-30, 2018 Print edition. Nikkei Inc. No reproduction without permission.
summer that it would raise soda prices to reflect the rising cost of
aluminum cans.
“We had to take, with our bottling partners, an increase
[in prices] in our sparkling beverage industry in the middle of
the year, which is relatively uncommon. That’s the metal steel
and aluminum going up, the labor going up,” James Quincey,
Coca-Cola chief executive, told CNBC in July.
The problems at the iconic American soda company have also
become a concern for one of Asia’s largest conglomerates, Swire
Pacific. Swire, based in Hong Kong, operates Coca-Cola bottling
franchises in both greater China and the western U.S.
Michelle Low Mei-shuen, Swire’s finance director, said its U.S.
bottlers are going to be fine for the rest of this year, thanks to hedg-
ing strategies. But after that it is “uncertain how it will turn out.”
As for Swire’s operations in mainland China, she does not see
much trouble ahead unless the trade war results in a rejection of
brands with a strong U.S. association.
“That would be something disastrous,” she said.
Nikkei staff writers Cheng Ting-Fang, Lauly Li, Nikki Sun, Michelle
Chan, Mayuko Tani, CK Tan, and Nikkei Asian Review editor-at-large
Ken Koyanagi contributed to this story.
of fresh financial aid. During the conference, Xi pointed to
the “existence of hegemonism and power politics, rise of
protectionism and unilateralism,” though he stopped short of
naming the U.S.
He also stressed China’s “five-no” policy, which includes
promises not to interfere with internal affairs and not to attach
any political conditions to its aid money.
Back in July, Chinese authorities released Liu Xia, widow of
the 2010 Nobel Peace Laureate Liu Xiaobo, accommodating
calls from Chancellor Angela Merkel of Germany and other
EU leaders, after keeping her under house arrest in Beijing for
eight years for being the wife of a dissident.
And in April, Xi invited Indian Prime Minister Narendra Modi
to Wuhan to normalize relations after a border confrontation
last summer that lasted over three months.
“This trade war should be looked at from a broader
geopolitical perspective,” Kevin Lai, chief economist at Daiwa
Capital Markets in Hong Kong, told the Nikkei Asian Review.
From Beijing’s perspective, the Trump administration’s
objective is to “contain China, once and for all.”
The Chinese official media is using phrases such as “war
of attrition” these days to prepare the public for a prolonged
dispute. Their outreach to other nations seems to reflect
the view that the trade headaches may worsen before they
get better.