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Edmund Malesky serves as expert witness in congressional hearing on consumer products from China

The professor of political economy and director of the Duke Center for International Development testified on how international supply chains have adjusted to the U.S.-China Trade War and the economic impact of these changes on Vietnam.

Edmund Malesky, professor of political economy and director of the Duke Center for International Development (DCID), delivered a testimony before the U.S.-China Economic and Security Review Commission for the “Consumer Products from China: Safety, Regulations and Supply Chains” congressional hearing, held on March 1.

“Today's hearing provides an opportunity to assess China's support for its manufacturing sector and evaluate the challenges China’s strategy poses to the U.S.,” Commissioner Kim Glas said in her opening remarks.

During the panel “Shifting Production Networks and Challenges for Supply Chain Resiliency,” Malesky shared his preliminary research, co-authored with Ebehi Iyoha, Jaya Wen, Sung-Jun Wu and Bo Fen, on how international supply chains have adjusted to the U.S.-China Trade War and the economic impact of these changes on Vietnam.

“Since the Trump Administration imposed tariffs on multiple Chinese export products in July 2018, there has been strong growth in Vietnamese bilateral exports to the United States, as well as corresponding imports to Vietnam from China,” Malesky said. “While some of the increase is certainly re-routing behavior by Chinese producers, the broader trend conflates this activity with three other patterns: the continuation of pre-tariff shifts in production caused by increasing Chinese wages and growing Vietnamese productivity; immediate post-tariff increases in production by existing manufacturers in Vietnam; and post-tariff manufacturing investment and exporting by multinational companies of multiple origins.”

In the first part of his testimony, Malesky showed that the 2018 trade war resulted in higher levels of Vietnamese exports to the United States, predominantly driven by the shifting of supply chains into Vietnam. For the second part, he drew on co-authored work to provide tentative evidence of re-routing: tariffs increased exports of tariffed products to the U.S. and imports of tariffed products from China by firms based in Vietnam.

He concluded with three recommendations: “First, exploration of re-routing behavior requires a much more precise and sophisticated analysis than is currently taking place in some policy circles. We recommend a more penetrating analysis into the shifting of investment into Vietnam based on high-quality product and firm-level data. Mischaracterizing legitimate investment and exporting behavior as re-routing could have negative consequences for the Vietnamese economy, undermining the strengthening economic relationship between Vietnam and the United States.

“Second, our analysis points to some tentative evidence of re-routing, particularly by Chinese firms that newly invested in Vietnam after 2018. If this can be definitively shown, countervailing measures against those particular exporters may be warranted. However, before doing so, it'd be beneficial to analyze how American workers and consumers may be benefiting from those same cheaper products.

“Third, private domestic firms in Vietnam have not benefited from the shifting investment landscape at all. Most are too small and unconnected to global supply chains. International assistance that can help Vietnamese domestic investors improve their productivity and provide intermediate goods and services to foreign investors would have a strong influence on economic growth and human development in the country.”

Created by the United States Congress in October 2000, the U.S.-China Economic and Security Review Commission reports on the national security implications of the bilateral trade and economic relationship between the U.S. and the People’s Republic of China and provides recommendations for legislative and administrative action.

View the hearing [Malesky’s testimony starts at 3:50:34]