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US-China trade tensions dominated the news in 2018 as Washington and Beijing announced a series of tit-for-tat tariffs, but China’s manufacturing dominance has meant there is little to gain from the tussle in the short term for manufacturers elsewhere in Asia.

Trinh Nguyen, senior economist, emerging Asia, at Natixis, said China’s supremacy in global manufacturing — it makes one in five manufactured goods — and its high-tech “Made in China 2025” plan appear to be the key driver behind the US decision to impose higher tariffs on Chinese goods. That dominance is even more stark when it comes to the US, as one in five Chinese goods by value is destined for US shores, Ms Nguyen said. 

However, even as Chinese manufacturers are squeezed by US tariffs, emerging Asia may see little benefit from the fallout. 

Because of China’s dominance in global manufacturing global market share, we do not believe that the rest of emerging Asia can benefit in the short term from the substitution effect as Chinese manufacturers are likely to drop prices if the volume that they sell decline, which would hurt EM Asia via price effects even if they gain some volume. 

US President Donald Trump and his Chinese counterpart Xi Jinping formed a fragile truce at their G20 meeting in November agreeing that Washington would not ratchet up tariffs on $200bn of Chinese goods to 25 per cent from 10 per cent in January if an deal was reached between the two sides. China then announced plans to reduce tariffs on US automobiles for three months.

Despite this, rising wages in China, diminishing policy support and higher export tariffs, mean emerging Asia can “gain from the cost arbitrage and reorganisation of the supply chain in the medium term, accelerating an already ongoing trend of labour-intensive manufacturing moving out of China.” Miss Nguyen added:

Based on our analysis of four key metrics: demographic trends, input costs, infrastructure and manufacturing FDI as a share of total, Vietnam and India will benefit most from the cost-arbitrage out of China’s rising costs.

fastFT rounds up some of the biggest developments — along with analysis from investors and strategists — in its annual Charts of the Year series. Do you have a chart that you think should be included? Email fastFT@ft.com.

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Major developed and emerging markets faced severe ructions this year, oil soared and dropped and politics played a deep role in shaping the views of asset managers across the world.

fastFT rounds up some of the biggest developments -- along with analysis from investors and strategists -- in its annual Charts of the Year series.

Do you have a chart that you think should be included? Email fastFT@ft.com.

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