Exploiting the US-China Trade War

The US-China trade confrontation has sharply escalated lately, while this past weekend’s G7 summit did nothing else than provide the opportunity for Trump to confess to “second thoughts” and for the other G7 leaders to tut-tut. But why should they even do that? If there is less US-China trade, shouldn’t there be more trade (i.e. sales) for other countries’ firms?

Well: yes and no. It’s complicated.

One the one hand there’s a recent piece from the main Dutch business newspaper, Het FinanciĆ«le Dagblad (FD): Dutch firms profit from trade-war.” (Should be behind pay-wall, but when I tried it wasn’t; your mileage may vary.)

Yes, things are going swimmingly these days for Dutch firms in China, as the FD has discovered doing the rounds among the various commercial branches engaged there; there has even been a noticeable loosening-up of the usual bureaucracy. But note the top-performing sector: land- en tuinbouw (“agriculture and gardening”). There it’s likely there’s been a minimum in the way of winning over Chinese customers who were serviced by US companies before; it’s just a more-friendly Chinese attitude. As one expert remarks, “The Chinese would never say it out loud, but at this moment a lot of business [for Dutch firms] is proceeding faster and easier” due to the US-China tension.

A second sector that has benefited is that of suppliers to auto-makers; clearly there has been some snatching of contracts once held by American firms there. At the aggregate level, as shown by figures from the Dutch national statistical office, first-half 2019 has seen substantial growth in Netherlands exports to and imports from China.

One interesting quote thrown in there: “The drive to be self-sufficient was already there, but is strengthened by such a trade-war.” From the context, that must mean being self-sufficient in food; you would think such a huge country would be that already. Now, that remark is from a Dutch management consultant. One wonders: Do actual Chinese officials worry about their country being self-sufficient in food?

For Leading Danish Industrial Firm: Not So Much

But the fallout from the US-China trade-war is not always positive, as the leading Danish Christian paper, Kristeligt Dagblad reminds us with Trade-war between USA and China sinks Danfoss’ growth. Danfoss is the “company” of the company-town of Nordborg, on its own big island (Als) in SE Denmark. Since just after WWII the firm has been selling internationally machinery primarily providing cooling/air conditioning (but also heating). While it mostly sells to Europe and the USA, it has been trying to make it in China as well. Unfortunately, sales staff there have been observing “economic reticence” lately, leading to reduced sales.

Even worse, Danfoss makes some of its equipment in China, for export to the US: that of course is feeling the full brunt of Trump’s tariffs. And what does it make most of its products out of? Yes, steel, which Danfoss has to buy as a raw material, and the all-around tariffs the Trump administration put on that commodity pre-date its confrontation with China.

Danfoss does seem to have factories located just about everywhere in the world but, as it points out in its latest annual report, if things stay too bad, too long it may be reduced to “regionalizing” its operations, so that US factories sell only to the US, China factories only to China, etc. – a logical solution, but one which will inevitably reduce efficiency, which is bad not just for Danfoss but for us all. More than that, the most over-arching effect of this American-Chinese spat is increased economic pessimism and uncertainty generally (says e.g. Paul Krugman), which is why so many (but not all) national economies are seemingly heading into recession.

Not in the Netherlands, at least not yet. Meanwhile, Dutch firms (and, surely, some Danish ones too) benefit from the US-China trade hostility. Turns out, the Dutch in particular are also profiting from Brexit, in the sense of capturing the lion’s-share of UK firms seeking to move to the Continent to ensure their continued unfettered access to the EU internal market. (Same warning here about a possible paywall as above.)

Tax revenue! Employment! Love & Happiness! Already around a hundred such firms have committed to that move (most to the Amsterdam area, by the way). And many more in the pipeline! Let others be stupid – the Dutch will simply hold back, then move in to take advantage!

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