US trade shifts due to Covid and China tensions, but no ‘decoupling’ yet

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While security concerns have risen and US imports from China fell after Washington and Beijing imposed tit-for-tat tariffs, trade has since picked up again.

The numbers could rise further when 2022 trade data is released next month, indicating just how intertwined the world’s two largest economies are.

But experts say the tensions have left their mark in other ways.

“US imports from China are well below the trend they were before the trade war started,” said Mary Lovely, a senior fellow at the Peterson Institute for International Economics (PIIE).

“There is definitely a move away from China on US imports, especially or mainly those goods on which the US raised tariffs,” he told AFP.

After the trade war began, the value of US goods imported from China fell from $506 billion in 2017 to around $450 billion in 2019.

Bilateral relations are not the only factors affecting trade. The pandemic also took a heavy toll.

Last November, China experienced its biggest drop in exports since the start of Covid-19, with business activity hit by a strict zero-covid policy.

Another factor weighing on imports is an “ongoing shift in the US away from spending on goods,” said Ryan Sweet of Oxford Economics.

Americans have spent heavily on imported goods during the pandemic, but “people are going back out and spending on services” as virus concerns subside, he said.

This reduces the demand for goods and may help explain why the numbers have not risen further.

Diversification, not decoupling

For now, US government figures through November show that total US-China trade could approach or peak in 2022.

“Going forward, you’ll see more diversification,” rather than a complete cut off of shipments from China, Sweet said.

Car manufacturers, for example, experienced supply chain problems during the pandemic.

Increasing weather-related disruptions are also “increasing the risks of over-concentrated supply chains in one company or one geographic area,” said Robert Koopman, a professor at American University and former chief economist at the World Trade Organization.

Meanwhile, the US is trying to become more self-sufficient in specific sectors like semiconductors.

“The recent (Reduction of Inflation Act) and Chips Act, and related sanctions, are clear indicators of the Biden administration’s efforts to disengage from China” in these areas, Koopman said.

Emily Benson, a senior fellow at the Center for Strategic and International Studies (CSIS), added: “As companies reassess risk and review the current state of their supply chains, one consistent result is movement… away from China. towards other countries”.

These could be countries in Southeast Asia or closer to the United States.

“While this trend is growing, it is more like sand escaping from a bag than a tsunami,” he told AFP.

It is likely “too soon” for definitive comment on industries, but US export controls “will force some decoupling” over time in technology or areas where semiconductors are key, Benson said.


PIIE’s Lovely noted that some businesses have moved from China to countries like Vietnam or Mexico.

“There has definitely been some supplier substitution,” he said, adding that this is partly due to Chinese investors opening factories outside their home country.

“In Mexico, it’s a different story,” Lovely added. “There have been some Chinese investments, but a lot of it is multinationals that were reaching out to the United States.”

But Koopman warned that countries like Mexico will need internal reforms to boost competitiveness and reduce implicit trade costs, to reap greater benefits.

US imports of goods from the European Union are also catching up, with year-to-date numbers for 2022 reaching $504.4 billion in November. This was on top of the $499.5 billion worth of goods from China during the same period.

But economists point to a post-Covid rebound in business activity around the world to explain the trend.

“These numbers are a small snapshot and are more likely to represent the return of the global economy to pre-pandemic levels than any specific decoupling move,” Benson said.

As China recovers from a surge in infections after relaxing Covid-19 rules, it also expects a notable increase in imports, Vice Premier Liu He said, speaking in Davos, Switzerland this month.

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