Due to the Epidemic and US-China tensions, US trade has turned but not yet “decoupled”

Freight containers unloaded at an international marine terminal in Portland, Maine, USA, January 2023, 31.

Against the backdrop of the coronavirus shock and tensions with China, U.S. trade flows are being recalibrated; However, efforts to reduce the interdependence between the two superpowers have not led to rapid decoupling.

While U.S. imports from China have declined and security concerns escalated after-for-tat tariffs imposed by Washington and Beijing, trade between the two countries has since climbed again.

Trade figures are likely to rise further by the time 2022 trade data is released next month, indicating just how intertwined the world’s two largest economies are.

But experts say tensions have left their mark on other fronts.

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

“There is definitely a phenomenon of US imports leaving China, especially those major goods for which the US has raised tariffs,” she told the media.

After the trade war began, the value of U.S. imports from China fell from $506 billion in 2017 to about $450 billion in 2019.

Bilateral relations are not the only factor affecting trade. The pandemic has also taken a heavy toll on trade.

Last November, China saw its biggest drop in exports since the start of the pandemic, and business activity was hit hard by a strict zero-clearance policy.

Also putting pressure on imports is that “the U.S. is moving away from spending money on goods,” said Ryan Sweet of Oxford Economics.

Americans have spent a lot of money on imported products during the pandemic, but as virus fears ease, “people will get back to putting their money back on services,” he said.

This reduces the demand for goods and helps explain why the numbers haven’t surged more.

Diversify, not decouple

Currently, U.S. government data as of November suggests that total U.S.-China trade could approach or reach a high in 2022.

“Going forward, you’re going to see more diversification,” rather than cutting off imports from China entirely, Sweet said.

For example, automakers experienced supply chain issues during the pandemic.

Increasing climate-related disturbances also “increase the risk of over-concentration of supply chains in one company or one geographic area,” said Robert Koopman, a lecturer at American University and a former chief economist at the World Trade Organization.

At the same time, the United States is trying to be more self-reliant in specific areas such as semiconductors.

“The recent Inflation Reduction Act and the Chips Act in the United States, as well as related sanctions, clearly demonstrate that the Biden Administration is working hard to decouple 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 constant outcome is a shift… Leave China and move to other countries. These

countries could be Southeast Asian countries or countries closer to the United States.

“While this trend is growing, it is more like sand leaking out of a bag than a tsunami,” she told the media.

Benson said it may be “too early” to make definitive comments on industries, but over time, U.S. export controls will force “some sort of decoupling” in the technology sector or where semiconductors are critical.

Alternative suppliers

Lovely of the Peterson Institute for International Economics noted that some operations have moved from China to countries such as Vietnam or Mexico.

“There will definitely be some alternative suppliers,” she said. She added that this was partly due to Chinese investors opening factories outside their home countries.

“In Mexico, it’s completely different,” Lovely added. “There’s some Chinese investment, but a lot of it is multinationals moving closer to the U.S.”

But Koopman warns that for countries like Mexico to reap greater benefits, domestic reforms are needed to improve competitiveness and reduce hidden trade costs.

U.S. imports from the European Union are also catching up, reaching $504.4 billion in early 2022 to 11. That’s higher than the $499.5 billion worth of goods coming from China over the same period.

But economists point to a rise in global business activity in the wake of the pandemic as an explanation for the trend.

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

Speaking in Davos, Switzerland, this month, Chinese Vice Premier Liu He said China also expects a significant increase in imports as it recovers from the surge in infections seen after the relaxation of containments.