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

Although security concerns have heightened and U.S. imports from China have fallen after Washington and Beijing imposed tit-for-tat tariffs, trade has since rebounded.

The numbers could rise further when trade figures for 2022 are released next month, underscoring just how interconnected 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 their pre-trade war trend,” said Mary Lovley, senior fellow at the Peterson Institute for International Economics (PIIE).

“There is definitely a turnaround in US imports from China, especially or mainly for those goods that the US raised tariffs on,” she told AFP.

After the start of the trade war, the value of American goods imported from China fell from $506 billion in 2017 to about $450 billion in 2019.

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

Last November, China saw its sharpest drop in exports since the start of Covid-19, with business constrained by a strict zero-Covid policy.

Imports are also affected by “the ongoing shift away from commodity spending in the US,” said Ryan Sweet of Oxford Economics.

Americans spent heavily on imported products during the pandemic, but “people are coming back and spending on services” as the virus eases, he said.

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

Diversification, not decoupling

For now, US government data through November suggest that total US-China trade could approach or reach a peak in 2022.

“Going forward, you’re going to see more diversification,” as opposed to a complete cessation of shipments from China, Sweet said.

For example, car manufacturers faced supply chain problems during the pandemic.

Growing climate-related disruption also “raises the risk that supply chains are too concentrated in one company or one geographic area,” said Robert Koopman, a lecturer at American University and former chief economist at the World Trade Organization.

Meanwhile, the US is trying to be more self-reliant in certain industries, such as semiconductors.

“The recent passage of the (Inflation Reduction Act) and the microchip law and the associated sanctions are a clear indication of the Biden administration’s efforts to disengage from China” in those 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 a move … away from China and towards other countries.”

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

“Although the trend is increasing, it is more like sand coming out of a bag than a tsunami,” she told AFP.

It’s likely “too early” to make definitive comments on industries, but U.S. export controls will “force some decoupling” over time in technologies or areas where semiconductors are critical, Benson said.

“Replacement”

Lovely from PIIE noted that some companies have moved from China to countries such as Vietnam or Mexico.

“There has definitely been some substitution of suppliers,” she said, adding that this is fueled in part by Chinese investors who have opened factories outside their home country.

“It’s a different story in Mexico,” added Lovely. “There has been some Chinese investment, but a lot of it is multinationals that have approached the US.”

But Koopman warned that countries like Mexico will need domestic reforms to increase competitiveness and reduce indirect trade costs to reap greater benefits.

U.S. goods imports from the European Union are also closing in, with figures for 2022 reaching $504.4 billion in November. This exceeded the $499.5 billion worth of goods from China during the same period.

But economists point to an increase in commercial activity in the post-Covid world to explain the trend.

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

As China recovers from a surge in infections after easing Covid-19 rules, it too expects a significant increase in imports, Vice Premier Liu He said in a speech in Davos, Switzerland, this month.

This story has been published from the news agency’s feed without changes to the text.