Opinion | US-China trade truce is too late to undo damage from the supply chain fallout and growing tech cold war

US President Donald Trump boasted in March last year that “trade wars are good and easy to win”, yet 18 months on, the trade stand-off with China has proved anything but. That both sides have reached a “phase one” agreement is good news for markets and lifts a huge cloud over the global economy.

But the complex unravelling of the world’s supply chains as a consequence of the trade dispute has triggered unintended – and perhaps irreversible – consequences.

Far from meeting Trump’s pledge to shrink the US trade deficit and repatriate jobs, this untangling has created a technology-driven cold war that threatens to present companies with challenges even bigger than tariffs.

The supply chain rearrangement has begun. In April, a survey of 600 multinational corporations by US law firm Baker McKenzie found nearly half considering “major” changes to their supply chains, and over 10 per cent, a complete overhaul – given the cost and risk involved, they are unlikely to shift back should trade tensions subside.

The US is unlikely to be the main benefactor. Some have moved production back to the US but this is partly due to the increased use of robots and artificial intelligence, suggesting an ‘insourcing’ of production unlikely to create as many jobs as Trump would like. Against a tight US labour market and widespread skill shortages, job creation in US manufacturing has lagged behind the broader economy since Trump’s election.

Given these challenges, and the wage inflation raising manufacturing costs in China, companies are considering Vietnam and Bangladesh instead. These markets may provide some protection from trade tensions, but margins in some of these new supply chains are so low that the result will almost certainly be higher prices for US consumers.