Vietnam makes a good test case. Just as Apple’s suppliers such as Hon Hai Precision Industry, better known as Foxconn, plan to expand capacity there, sending industrial land prices to new highs, global manufacturers are finding that Vietnam can be easily ensnared by shortages.
Right now, building materials like aluminium window sills — which are abundant in China — are hard to come by there.
This is because Vietnam, along with the rest of Asia, imports a lot of basic industrial products such as chemicals and plastic, from its northern neighbour.
Even though its economy has been open since March, as long as China continues with COVID-zero lockdowns, the Southeast Asian nation will continue to suffer from supply chain bottlenecks. Vietnam’s PMI suppliers’ delivery times index, which captures the extent of supply chain delays in an economy, remained in contraction in July.
CHINA’S INVESTMENT IN CONNECTIVITY
Over the years, China’s ambitions to climb the value chain meant a shift of its production toward higher-end equipment and industrial goods.
It has built out a vast manufacturing sector that supplies a significant portion of components, or intermediate goods, that go into final products. It is now the top global exporter of such parts in terms of value.
That means cutting the country’s manufacturers out of the equation will cause a headache in Asia and will inevitably become a problem for industrial companies in the US, too.