LOOKING TO AVOID US-CHINA TARIFFS?
OUR GLOBAL NETWORK PROVIDES VIABLE ALTERNATIVES AND COMPREHENSIVE SUPPLY CHAIN MANAGEMENT SOLUTIONS!
EDS International has an extensive global network and expertise in Asia, Europe and the Americas. We can find and assess your ideal manufacturer, support your production transition or provide scalable, end-to-end supply chain solutions. Read more about the countries where we provide these solutions below.
Click Your Manufacturing Country Below
Mexico has an export-driven economy. After the North American Free Trade Agreement (NAFTA) took effect on January 1, 1994, tariffs on more than half of exports from Mexico to the US were lifted.
Mexico’s global exports increased by 6.7% year-on-year to a record high of USD 41,825.44 million in May 2019. Non-oil exports added 7.7% on the back of higher sales of manufacturing (8%), namely automotive products (16%), industrial machinery & equipment (11.9%), food, alcoholic & beverages (10.7%), and professional & scientific equipment (5.7%).
Specific to the US, there was a rise of 8.5% in non-oil exports, mostly due to stronger auto sales (19.8%). The US is Mexico's biggest trading partner. Currently, the US buys 80% of what Mexico exports compared to just 3% and 1% to Canada and China respectively. Mexico is now a major center for electronics. That includes most of the flat-screen TVs sold in the US. It also makes medical devices and aerospace parts.
International trade, which is exports plus imports, makes up 77% of the country's GDP. That is much higher than Brazil’s 23% or even China’s 48%. The emphasis on trade makes Mexico's companies globally competitive. Gruma is the world's largest tortilla maker. Bimbo is the largest bread maker since it acquired US baker Sara Lee. Mexico’s geographical proximity gives its companies direct access to the US market. They also share a common language with the rest of Latin America.
Mexico grew from the ninth to the seventh largest auto manufacturer in the world between 2010 and 2015 and the fourth largest auto exporter. It recently surpassed Japan as the second-largest auto parts exporter to the US.
When looking at its top 10 exports below, it’s also worthwhile to consider its growing expertise in manufacturing, stamping, metal mechanics and furniture assembly.
Top 10 exports:
- Automotive – 49%
- Electronic equipment, components and accessories – 19%
- Electrical appliances and electric power generation equipment – 7%
- Machinery and equipment – 5%
- Metallic products – 5%
- Oil and oil products – 5%
- Chemicals – 3%
- Basic metal industries – 3%
- Food industry – 3%
- Plastic and rubber industry – 3%
*data from www.inegi.org.mx (National Institute of Statistics and Geography)
Advantages of buying from Mexico:
Mexico and the US have always had close economic and diplomatic ties. One of the reasons is Mexico’s geographical location which expedites logistics and keeps shipment costs low. Some of the biggest advantages are fair labour cost and qualified manpower together with intellectual property laws which are aligned to those in the US. Overlapping time zones are also an obvious benefit.
Since January 1, 2019, the following taxes have been reduced in 43 US-Mexican border towns in Mexico; specifically, in the states of Baja California, Sonora, Chihuahua, Coahuila, Nuevo Leon, and Tamaulipas:
- IVA (VAT) reduced from 16% to 8%
- ISR (the corporate tax rate) reduced from 30% to 20%
Finally, trade agreements that allow manufacturers in Mexico duty-free access to 60% of all other countries around the world are big reason foreign investors and manufacturers are flocking to Mexico.
Representing less than 5 percent of the world's population, the United States of America (US) generate and earn more than 20 percent of the world's total income. The US is the world's largest national economy and leading global trader. As the world’s largest importer, US markets are a highly sought-after destination for the sale of goods. However, the US is also a major manufacturing destination. As the world’s 2nd (after China) largest exporter, the US is an exceptional source for many production factors such as highly skilled labor, capital, entrepreneurship, and natural resources.
In terms of manufacturing value-added (MVA - the total estimate of net-output of all resident manufacturing activity units obtained by adding up outputs and subtracting intermediate inputs), US exports increased by 7% to $2.4 trillion in 2018. While this figure as a percent of GDP has decreased consistently since 1980, it still represents a promising trend for US-based manufacturing. Fittingly, US employment in manufacturing has also increased in recent years, including the growth of about 152,000 jobs from July 2018 to July 2019. In fact, US-based manufacturing seems to be entering a period of sustained growth, which some are even calling a renaissance. Over the last two years, the United States has created more than 450,000 new manufacturing jobs.
Driving US manufacturing growth are trends in global trade, low natural gas prices, a growing US population, and strength in certain key industries (i.e. machinery, pharmaceuticals, health technology, chemicals, petroleum products, aerospace and equipment for transportation and construction). However, it must be stated that advances in automation and increased investment in robotics have the potential to dampen long-term job growth in the US and around the globe.
While the US is regarded as a service-based economy, with 71% of the labor force engaged in a service-based industry, close to 67% of US exports in 2018 came from manufactured goods. In fact, 2018 US export of goods were the highest on record, at $1.7 trillion according to the US Census Bureau, with most of those exports going to three countries: Canada (17.85%), Mexico (15.69%) and China (8.49%).
Trade statistics from the US Census Bureau indicate that 2018 saw the strength of US exports climb to record highs (seasonally adjusted) in several categories of manufactured goods. Both exports of petroleum ($172.4 billion) and non-petroleum exports ($1.5 trillion) were the highest on record. Additionally, industrial supplies and materials ($538.9 billion); capital goods ($562.0 billion); consumer goods ($205.9 billion); and other goods ($65.4 billion) were the highest on record.
When looking at the US top 10 exports below, it’s also worthwhile to consider its growing expertise in manufacturing, stamping, metal fabrications, prototyping, casting and furniture assembly.
Top 10 exports:
- Industrial Machinery – $213.4 billion (12.8%)
- Oil & Mineral Fuels – $192.7 billion (11.6%)
- Electrical Machinery – $176.3 billion (10.6%)
- Aircraft – $139.4 billion (8.4%)
- Motor Vehicles & Parts – $130.7 billion (7.9%)
- Precision Instruments – $89.6 billion (5.4%)
- Plastics – $66.6 billion (4%)
- Precious Stones & Metals – $ 63.1 billion (3.8%)
- Pharmaceuticals – $48.3 billion (2.9%)
- Organic Chemicals – $46.2 billion (2.8%)
*data from UN Comtrade (2018) retrieved from https://comtrade.un.org/
Advantages of buying from USA:
As the largest recipient of foreign direct investment (FDI) in the world, the US provides foreign investors a stable and welcoming market. The US economic and legal system provides a predictable and transparent business experience with low taxes, outstanding infrastructure, and access to the world’s most lucrative consumer market. In fact, FDI in the US is estimated at $4.34 trillion, supporting roughly 7.4 million US jobs.
Exports from the US tend to be high and moderate complexity products, supported by a robust and highly educated labor force. The US has a proven track record of providing foreign investors with access to industry experts and production capabilities connected with a variety of industries such as advanced manufacturing ($1.1 trillion), aerospace ($21.9 billion), energy ($172.8 billion), automotive ($114.6 billion), life science ($648.3 billion), high-tech ($2 trillion), and logistics/supply chain ($1.5 billion). Additionally, the US has strong protection for intellectual property, which means lower risk for foreign investors doing business in the US and ease of dispute resolution.
Another reason to manufacture in the US is that the local companies can save time and costs on logistics and shipping thereby shortening lead times and garnering more satisfied customers. Made in the USA means quality for most people and can also be a very valuable marketing tool for your brand.
Since 1986, Vietnam, a densely populated country in Southeast Asia, has been shifting from a centralized highly agrarian economy to an industrial and market-oriented economy. This has helped to lift incomes in the industrial parts of the country.
Electronic and electrical products are the country’s top exports. Vietnam has a strong competitive advantage in the market for electrical products, including smartphones, integrated circuits and micro assemblies, TV, radio or radar device parts.
Samsung is the largest Vietnamese exporter and has aided the country in achieving a trade surplus in 2018 for the first time in many years. The EU, China, the US, Korea, and Saudi Arabia are the main export destinations their phones.
The main footwear producers (e.g. Adidas, Puma, & Nike) are all based in Vietnam while having factories elsewhere. Currently, Vietnam is the fourth-largest manufacturer of footwear in the world. Only China, India, and Brazil produce more shoes. With the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (previously known as the TPP), this market will continue to grow.
Vietnam is also ranked number eight in the world in terms of furniture exports as reported by the Italian Centre for Industrial Studies. Large, global retailers send their designs and specifications of furniture to Vietnamese manufacturers, which they then build and export.
The main export partners of Vietnam are the US as 19 % of total exports. China (16 %), Japan (8%), South Korea (7%), Hong Kong (4%), and the Netherlands (3%) round out the top 6.
In 2018 Vietnams exports totaled $244.7 billion. During the seven years between 2012 and 2017 exports from Vietnam increased at an annualized rate of 13.5%, from $116 billion to $220 billion. This remarkable rise has been driven by smartphones, garments, and electronic home appliances. Monthly exports from Vietnam have increased from a low of $0.54 billion in February 1997 to an all-time an all-time high of $23 billion in August 2018. With a continuation of the trade war between the US & China and companies around the world continuing to diversify their supplier base, it is likely that monthly exports are continuing to break records.
Top 10 exports (2018):
- Electrical machinery, equipment including mobile phones – $107.8 billion (39%)
- Footwear – $21.8 billion (7.9%)
- Clothing, accessories (not knit or crochet) – $15.7 billion (5.7%)
- Machinery including computers – $15.1 billion (5.5%)
- Knit or crochet clothing, accessories – $14.6 billion (5.3%)
- Furniture, bedding, lighting, signs, prefab buildings –$9.7 billion (3.5%)
- Optical, technical, medical apparatus – $6.2 billion (2.2%)
- Fish – $5.5 billion (2%)
- Plastics, plastic articles – $4.1 billion (1.5%)
- Iron and steel – $4.1 billion (1.5%)
*data from www.customs.gov.vn (Ministry of Finance of Vietnam, General Department of Customs)
Advantages of buying from Vietnam:
Vietnam has wages substantially lower than in China, a young population, stable political environment, low inflation, decent infrastructure and strong manufacturing sector. Those factors as well as its proximity to China makes Vietnam a preferred destination for those looking to diversify their supplier base and manufacturing. The country already boasts thousands of factories that are owned by Chinese, Japanese, Korean and Taiwanese companies. This has resulted in an influx of know-how and development of a wide variety of production capabilities that can be tapped into by foreign buyers. The country is currently a star among emerging markets as a result of trade liberalization (various free trade agreements have been signed over the past 20 years*), with deregulation resulting in a lower cost of doing business as well as substantial investments in human capital and infrastructure.
*Vietnam joined the WTO in January 2007 and concluded several free trade agreements in 2015-16, including the EU-Vietnam Free Trade Agreement (not yet ratified), the Korean Free Trade Agreement, and the Eurasian Economic Union Free Trade Agreement.
Taiwan is one of the top manufacturers of intermediate goods in the world. Intermediate or semi-finished goods form part of other goods meaning they are not directly sold to end consumers. The most recognizable intermediate goods from Taiwan are electronic components, machinery and machine tooling equipment.
The probability is high that the computer you’re using, no matter the type or brand, has components of Taiwan origin. The country boasts the world’s leading computer chip producer along with major touch screen innovations that have given a big boost to the smartphone sector.
The computer giants Acer and Asus, as well as the phone producer HTC, are Taiwan’s largest electronic companies. CyberLink is a well-known Taiwanese software company along with D-Link, Trend Micro and Gigabyte which are supplying USB sticks, routers and hard drives to the international market.
Bicycles are another major item in Taiwan’s export list. Giant, Merida and other leading producers of medium- to high-end bicycles and components are also headquartered in Taiwan.
According to data from the International Monetary Fund, Taiwan is almost three times as productive as mainland China. Taiwan ranks among advanced economies such as Germany and Australia in GDP per capita. This means that production costs tend to be a bit higher than China but with an inherent understanding of the requisite quality.
Taiwan’s main trading partners are China ($73.9 billion), Hong Kong ($38.4 billion), US ($33.6 billion), Japan ($19.6 billion) and Singapore ($16.2 billion). Contrary to the predicted export slump, shipments from Taiwan increased 0.5% year-on-year to $28.39 billion as of June 2019. This was just shy of the monthly record high of $29.9 billion set in March 2018. Leading the way were information, communication and audio-video products (20.2%) as well as electronic parts (3.3%).
Taiwan’s Top 10 Exports
- Electrical machinery, equipment – $144.3 billion (43% of total exports)
- Machinery including computers – $40.6 billion (12.1%)
- Plastics, plastic articles – $22.4 billion (6.7%)
- Optical, technical, medical apparatus – $16.1 billion (4.8%)
- Mineral fuels including oil – $13.8 billion (4.1%)
- Organic chemicals – $11.5 billion (3.4%)
- Iron, steel – $10.4 billion (3.1%)
- Vehicles – $9.9 billion (3%)
- Articles of iron or steel – $8.6 billion (2.6%)
- Copper – $5 billion (1.5%)
* data from www.trade.gov.tw (The Bureau of Foreign Trade, Ministery of Economic Affairs)
Advantages of buying from Taiwan:
As an answer to the trade war between the US and China and to encourage Taiwanese companies overseas to return and invest in Taiwan, the country’s government offered the three-year (2019-2021) “Action Plan for Welcoming Overseas Taiwanese Businesses to Return to Invest in Taiwan”. These measures aim to spur economic growth by driving development of local industries and cultivating the country’s future industrial competitiveness.
Zhang Mingbin, Managing Director of Taiwanese Investment Office, also announced that the five largest industrial supply chains (e.g. network communications equipment and bicycles) will form the core of Taiwan's 20-year development with the goal of re-patriating these industries as far as possible. With these goals in mind, Taiwan should go from strength to strength as a provider of high-quality parts and components across a number of industries and sectors. EDS is excited about these developments and continuing to provide our clients bespoke, scalable supply chain solutions.
With its strategic location close to such trading partners as China, Pakistan, and Bangladesh, India exported US$323.1 billion worth of goods to the international market in 2018. With a population of 1.3 billion that converts to roughly $250 for every citizen in the country. That numbers are saying a lot compared to $1,746 per person for China and $2,544 per person for Vietnam.
The destinations for Indian exports are Asia (49.3%), Europe (19.3%), North America (18%), Africa (8.3%), and Latin America (2.9%).
The Commerce Ministry has conducted a study regarding the lingering US-China trade war and the opportunities it brings to the Indian economy. It has been found that there are more than 350 products, including granite and chemicals, which can enhance exports from India. The study was also aimed at determining and classifying the products that can give a boost to India’s exports to the US and China. One of the conclusions made as a result of the study is that 150 local products, among them chemicals, diesel and X-ray tubes, show considerable potential for substituting US shipments to China. At the same time, there are 203 products of Indian origin, including graphite electrodes and rubber that can replace Chinese exports to the US.
India’s top 10 exports (2018):
- Mineral fuels including oil – $48.3 billion (14.9% of total exports)
- Gems, precious metals – $40.1 billion (12.4%)
- Machinery including computers – $20.4 billion (6.3%)
- Vehicles – $18.2 billion (5.6%)
- Organic chemicals – $17.7 billion (5.5%)
- Pharmaceuticals – $14.3 billion (4.4%)
- Electrical machinery, equipment – $11.8 billion (3.6%)
- Iron, steel – $10 billion (3.1%)
- Cotton – $8.1 billion (2.5%)
- Clothing, accessories (not knit or crochet) – $8.1 billion (2.5%)
*data from www.mospi.gov.in/ (Ministry of Statistics & Programme Implementation, Government of India)
Advantages of buying from India:
India offers a viable alternative to China for a variety of product categories, which is why currently hundreds of American companies are contemplating moving their supply chain there. This seems a promising option given the combination of India’s high- and low-skilled labor as well as the scope for sales a the market that has a substantial capacity. A large proportion of the local population lives below the poverty line, but incomes are on the rise and there is a wide array of well-educated graduates in the country. With Prime Minister Modi recently re-elected in another landslide victory, the “Make in India” campaign will continue to gather momentum and offer the interested companies various incentives to manufacture their products in the world’s largest democracy. Another major plus for India is its widespread adoption and usage of the English language, especially vs. countries such as China and Vietnam.
It is no secret that India’s economy is one of the world’s fastest growing economies. In the recent years the Indian government has been implementing a number of reforms enabling continuous economic growth in the country. Seeking to improve external shipments as part of their development program, the Indian authorities are giving support to the companies involved in export trade. The main purpose of the provided benefits is to streamline the export process, eliminating the existing bottlenecks. The reforms include economic liberalization and social-democratic changes. In the 1990s, after the launch of the liberalization plan, open market economic policies have been pursued. The GDP and the standard of living, among other economic indicators, rose noticeably in the country thanks to foreign investments increasing in a number of sectors. Besides, more action has been taken to add flexibility to business and get rid of unnecessary bureaucracy.
The policies have brought about a rise in export shipments while also buoying optimism among the market players. The Indian government is additionally making progress with many other measures to grow the country’s export sector.
Located on the Indochinese Peninsula, Thailand is second-largest economy in ASEAN following Indonesia and eighth-largest economy in Asia. Although known globally as one of the world’s most popular travel destinations, the Thai Kingdom is also a foreign-trade-friendly, upper-middle-income economy, with a year-on-year GDP increase of 4.1% in 2018.
Thailand’s development is largely driven by exports ($249.8 billion last year). The country’s main external market is China ($30.2 billion), followed by the US ($28.1 billion), Japan ($24.9 billion), Vietnam ($13 billion), and Hong Kong ($12.5 billion). Exports helped Thailand recovery more quickly than other countries after the financial crises that destabilized Asia in 1997 and 1998.
Given the export indicators mentioned above and a population of around 69.4 million people, Thailand (about $3,600) is quite far ahead of China ($1,746), Vietnam ($2,544), and India ($250) in the value of exports per capita.
Thailand has a competitive advantage in the automotive industry which is demonstrated by a positive balance of trade in cars and trucks. Parts and motorcycles also trade at a surplus albeit not as large as cars and trucks.
Being an export-oriented country, Thailand relies massively on trade alliances with other countries. Top 10 products in the bi-lateral trade relationship with the USA are rubber (rubber tires, plastic lids, rubber pipes, etc.), machinery (video recording equipment, radio receivers, integrated circuits, video displays), prepared food (processed fruits, nuts, animal food), seafood (processed fish and processed crustacean), agricultural products (vegetable products such as rice), jewellery (jewellery and gems), computers, telephones, oil products, apparel (textiles). Thailand is also the 20th largest export destination for the US, and trade between the two countries has been on the increase in recent years. In addition to its agreements with the US, Thailand is also a member of the World Trade Organization (WTO) and the Cairns Group of agricultural exporters.
Thailand’s top 10 exports (2018):
- Machinery including computers: $42.9 billion (17.2%)
- Electrical machinery, equipment: $35 billion (14%)
- Vehicles: $30.4 billion (12.2%)
- Rubber, rubber articles: $15.5 billion (6.2%)
- Plastics, plastic articles: $14.5 billion (5.8%)
- Gems, precious metals: $11.9 billion (4.8%)
- Mineral fuels including oil: $10.6 billion (4.2%)
- Processed meat/seafood: $6.6 billion (2.6%)
- Organic chemicals: $6.1 billion (2.5%)
- Cereals: $5.7 billion (2.3%)
*data from www.tradereport.moc.go.th (Information Technology and Communication Center Ministry of Commerce)
Advantages of buying from Thailand:
Experts estimate that the Thai economy will grow 3.3% to 3.8% in 2019. The key prerequisites for the improvement are an increase in government expenditures and public investment in core infrastructure projects. One other prerequisite has already been filled with more business and investment friendly constituents winning key seats in the March 2019 elections.
In order to boost infrastructure, Thailand has issued the Eastern Economic Corridor (EEC) Act. The act will assist the ECC develop integrated infrastructure and utilities connecting air, land and sea. Increased investment is planned in high-speed railway connections along with port and airport improvement and expansion projects. The EEC’s current plan includes 30 existing and new industrial zones. There are three more provinces awaiting investments of $55 billion — Chachoengsao, Chon Buri, and Rayong. Electric cars, hi-tech electronics, agriculture and biotechnology, food, robotics, aviation, biofuels, and digital technologies are the industries being promoted within the EEC.
Thailand is not a low-cost production base. That said, it is seen as a viable sourcing and manufacturing option by many companies due to its reliable business environment, well-developed logistics infrastructure and vast natural resources. The government of Thailand is also taking active steps towards improving the country’s trading position. Whether by boosting investment in technical equipment, allocating Special Economic Zones along its borders or promoting cluster structures (geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular industry), the government wants to be seen as a serious global player.
Coupled with its natural resources and easy connectivity with other ASEAN countries (including Cambodia, Laos, Myanmar, and Vietnam), Thailand can be an attractive alternative to China for certain product categories. For further reading on Thailand, see Thailand Sourcing.