Citi recently released a report titled "Global Trade in Flux: Politics, Policy, and the Reconfiguration of Supply Chains" which examines the ongoing dynamics in global manufacturing and trade, focusing on the growing movement of manufacturing supply chains away from China. It highlights the rise of Latin America (LatAm) and other Asian economies especially India and Vietnam as potential beneficiaries of these shifts. Below is the summary of the key findings from the report:
Shifting Trade Dynamics:
FDI into China has fallen over 90% since 2022. ASEAN economies have surpassed China in attracting foreign direct investment (FDI), driven by supply chain shifts and manufacturing approvals across multiple sectors.
LatAm's trade with China has surged, with bilateral trade growing to nearly $490 billion in 2023, accounting for 13% of the region’s exports. However, LatAm remains dependent on commodity exports to China, while importing predominantly manufactured goods. Electric machinery and vehicles account for the largest share of imports from China.
There was an almost +30% increase in payment flows from China to Latam over the last three years.
- While there is a gradual increase in Latam trade with China, the reverse trend is noted for its trade with the US.
- Between 2017 and the first half of 2024, China lost 7.7 percentage points (pp) in its market share of the U.S. imports due to decoupling from the U.S. Mexico has been the primary beneficiary of this trend, gaining 2.2 pp in U.S. import market share. Following Mexico, Asian countries such as Vietnam, Taiwan, South Korea, India, Singapore, and Thailand have also seen notable gains.
Challenges for LatAm:
LatAm’s nearshoring potential is underutilized, with stagnant FDI flows at 2.6% of GDP, far below the 1999 peak of 3.9%. To capitalize on shifting trade patterns, the region must implement reforms to attract investment and improve infrastructure.
Manufacturing productivity and political uncertainty also hinder LatAm’s ability to increase its capacity to produce value-added goods.
Supply Chain Relocations in Asia:
Vietnam's share of receiving production relocations away from China dropped significantly, from 36.6% during 2018–2020 to 16.5% in 2021–2024. Meanwhile, other ASEAN countries—Indonesia, Malaysia, and Thailand—received a greater share of relocations in recent years. Active investments targeted the electric vehicle (EV) sector in Indonesia and Thailand, while Malaysia saw substantial activity in the electronics sector.
India has become the top destination for relocations, particularly in mobile phone manufacturing.
ASEAN’s integration into global supply chains is bolstered by its manufacturing capacity, government support, and regional integration. However, risks like US and EU tariffs on Chinese-linked exports remain (providing an example with Vietnam's exports rising alongside an increase in Chinese relocations to the country, the report suggests the possibility that Chinese manufacturers may be rerouting exports to the U.S. and other markets through Vietnam). Observers have noted the potential increase in scrutiny on China’s trade re-routing under the new administration next year, which could impact the interest of countries receiving foreign investment benefits from manufacturing relocations such as Thailand, Malaysia and Vietnam.
In terms of relocation origins, firms based in China and Hong Kong accounted for 29% of relocations since 2018, while U.S. and other Western companies contributed 43%. Japan, Korea, and Taiwan collectively accounted for 25%.
Global Trade and Geopolitics:
Despite China's share of global exports remaining steady at 13.5–13.6% between 2018 and the first half of 2024, the ASEAN-6 economies increased their share by 0.5 percentage points, reaching 8%, driven by Vietnam and Malaysia. India, Korea, and Taiwan also saw their respective shares rise by 0.3 percentage points during this period.
- Three major forces are shaping global trade: reducing concentration risks, rising protectionism in the West, and US-China strategic rivalry.
- China is countering US tariffs by deepening ties with the Global South, increasing technological self-sufficiency, and diversifying its supply chains.
Technological and Resource Trends:
The report discusses decoupling in technology supply chains, with opportunities for LatAm in assembly, testing, and packaging (ATP) due to its cost advantage and proximity to the US. The region is also poised to benefit from growing demand for critical minerals essential for low-carbon infrastructure.
- Increasing investments by semiconductor companies in Malaysia and Singapore. Malaysia, the Philippines, Vietnam, Singapore, Thailand, and Mexico are positioned to secure more ATP capacity.
Some Key Winners:
The US is also emerging as a key winner of the rebalancing process, with its share of global FDI rising from below 15% in 2019 to nearly 30% in 2023. Mexico has also gained market share in US imports, benefiting from nearshoring trends.
- China, while seeing a decline in its manufacturing dominance, continues to lead in clean technology and other critical sectors.
One of the major driving forces behind the strengthening of trade ties between ASEAN and Latin America is the Asia-Pacific Economic Cooperation (APEC), whose member economies include countries from both Southeast Asia and Latin America. By July 2023, APEC member economies had collectively signed 212 free trade agreements (FTAs), with 74 of these agreements being intra-APEC, involving at least two member economies.
On November 14, a representative of the US-ASEAN Business Council attended the APEC Peru 2024 sideline meetings, including the APEC 2024 CEO Summit and the U.S.-APEC Business Coalition Meeting. These meetings were also attended by the President of Vietnam Lương Cường, the Prime Minister of Thailand Paetongtarn Shinawatra, and the Secretary of Trade and Industry of the Philippines Maria Cristina Aldeguer-Roque. President Lương Cường highlighted Vietnam’s strategy to promote a transparent and stable investment environment in the country through (1) implementing reforms for opening up, (2) protecting business interests and intellectual property rights, and (3) developing policies for new economic drivers, such as free trade areas and innovation centers in Danang and Ho Chi Minh City. Prime Minister Paetongtarn stated that Thailand is looking to forge ahead as a leader in diplomacy, including in negotiations on the ASEAN Digital Economic Framework Agreement (DEFA) and hosting the Asia Cooperation Dialogue (ACD) in 2025. Additionally, there was engagement with U.S. businesses across various sectors, where the companies shared updates on their business operations in the region and outlined plans for future cooperation.
