When it comes to environmental standards, Asian exporters will have to invest in mapping and addressing their carbon footprints. Sharing costs with customers seems reasonable. When it comes to resiliency of supply chains, companies must find innovative solutions. Partly producing in target markets could address this issue, but only if an exporting firm can make advantage use of its intellectual property, design and industrial management.
Decoupling will create a more challenging environment, but the countries and firms that adapt the soonest could continue to be or emerge as big winners.
China has proved through such champions as TikTok (ByteDance), Alibaba and Huawei that it can go toe-to-toe with Western competitors and outperform them both at home, in the West itself, and everywhere else. For these superstars, regionalization will be a nuisance at worst. For smaller and/or less innovative low-cost producers, persevering and succeeding will be a steeper challenge. With promising innovation in Chinese infrastructure and an ever-demanding mass of Chinese consumers, the greatest opportunities may lie at home. Meanwhile, everywhere the West has imposed sanctions, the Chinese will be able to sell their products without Western competitors. The reality is that the US can number among its friends countries that account for about half of the world’s GDP.
Close geographically to China, but removed politically, are the other exporting economies of East Asia: Japan, South-Korea and Taiwan. For these regional powers, the dreaded decoupling could make their economies more attractive to Western powers as alternatives. A partial economic realignment, along with a strong commitment to the alliance of democracies, could bring them new opportunities, especially if these economies can address Western (particularly European) concerns about sustainability and the climate-neutral production requirement.
India, the other Asian giant, has been walking a tightrope ever since the start of the Ukraine conflict. While it is the largest democracy in the world, it does not agree with Washington on all things, regardless of the US’s claim to be the leader of the free world. Delhi has been unwilling to take part in sanctions against Moscow, instead using the opportunity to gain access to cheaper oil and gas. India is wise to do so as Western powers are in no position to force India to pick sides.
In the meantime, Delhi is looking to ramp up domestic production as well. Under the slogan “self-reliant India”, the government is seeking to reduce dependency on imports (such as fertilizer) and to compete with China as a production base. Unlike China, India has strong democratic credentials and has become stronger in industries that are perceived to be less controversial such as IT services. Although IT outsourcing is always at risk to competition from lower-cost players as well as new technologies, India is at the forefront of developments in technology such as robotic process automation.