Trade war and US retail’s odd state

An obvious theme for investors is to seek emerging world growth. It’s part of the globalization story, where capital and know-how rolls in from the developed world to lever sway into untapped opportunity.

News that Amazon is building their largest campus yet in Hyderabad India should read innocuously enough these days. With 60,000 employees in India already, the new location will accomodate 15,000, triple Amazon’s largest office in Seattle.

India’s growing retail market potential is obvious and apparently ecommerce is less than 3% of their marketplace. Simply, economic progress in this country of 1.3 billion people screams of potential.

Not surprisingly, Amazon is also competing with Walmart here, who via acquisition and ground investment have also established an India commitment.

Walmart has been in the ballpark of 9% of consumer retail spending in the US for some time now. And Amazon’s “apocalypse” of US bricks and mortar retail is well known. Amazon proved US retail was ripe for disruption, over-malled with more retail sq. ft. per capita than any other country in the world – for example 2015 data had US retail sq ft per capita at 23.6, five times that in the UK. So these two retail behemoths bring a dynamic know-how to India’s market of 17% of global population but with GDP/capita just 1/5 of China and 3% of the US.

As America tries to redefine its’ trade relations with China after getting de-industrialized by years of labour arbitrage and China’s supply chain appeal, remember that as much as 3/4s of Walmart merchandise sold in the US is made in China, many for US companies. An estimated 40% of Amazon sellers are based in China.

So as much as one might like to think this emerging US presence in India is great for America, it makes me wonder what percentage of Walmart and Amazon’s merchandise sales in India, or elsewhere for that matter, are made in China too? Presumably similar.

And to add to the odd reality of this trade dispute there was news that Costco opened it’s first story in China this week and had to close due to excessive crowds. The stock market loved this too, unperturbed, bidding up Costco’s stock to new highs despite the trade tensions of both countries exchanging new and higher tariffs just on Friday.

Between security issues and intellectual property rights there is probably good reason to maintain a pessimistic outlook on this US/China trade war process. But globalization means there’s a concoction of vested interests here, the dynamics of which we’ve yet to really experience. From Apple’s supply chain to Costco’s growth ambitions in China to Amazon and Walmart excelling at selling things made in China to the world, it is an odd set-up indeed.