These Asian nations are low-cost manufacturing hubs for the US

Countries such as Vietnam (VNM) and Malaysia (EWM) could have been major beneficiaries as low-cost manufacturing hubs among the member nations of the Trans-Pacific Partnership or TPP. With the US (SPY) withdrawing from the TPP on Monday, January 23, emerging markets (EEM) (VWO) such as Malaysia and Vietnam appear to be standing at the losing end.

For Malaysia, the U.S. accounts for about 10% of its exports and is the supplier of about 7.1% of its imports. U.S.-based companies such as Intel (INTC), Western Digital (WDC), First Solar (FSLR), and Agilent Technologies (A), count among the top US companies operating in Malaysia.

For Vietnam, the U.S. is its top export destination, accounting for 18% of all exports. Imports from the US, however, stand at 3.9% of all Vietnamese imports. US-based companies such as Intel (INTC), Microsoft (MSFT), Nike (NKE), Adidas; Ford (F), General Motors (GM), have been increasingly shifting their production from China to Vietnam over the years in search of better less bureaucracy and lower costs.

New China

According to a 2016 Deloitte report on Global Manufacturing Competitiveness:

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“The five Asia Pacific nations of Malaysia, India, Thailand, Indonesia, and Vietnam (MITI-V aka the “Mighty Five”) are expected to pierce the top 15 nations on manufacturing competitiveness over the next five years. These nations could represent a “New China” in terms of low-cost labor, agile manufacturing capabilities, favorable demographic profiles, market and economic growth, with their competitiveness ranking rising in the next five years as China continues to shift its focus towards a higher value, advanced technology manufacturing paradigm.”

Hence, weakening trade ties with their most important trade partner could shatter the plans these Asian nations had of being part of the ‘New China’.

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