As Tensions Rise, U.S. Imports From China Shrink: The Kiplinger Letter

You hear a lot about “de-China-ization” — the push by U.S. businesses and by Washington, D.C. to rely less on China as tensions with Beijing mount. To help you understand deglobalization, the reversal of global trade’s decades-long surge, and what we expect to happen in the future, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest… 

Two major factors are driving the shift to depend less on China:

• Tariffs imposed on certain Chinese goods by the Trump administration starting in 2018 and kept in place by the Biden administration. 
• The pandemic, which caused a surge in imports of medical gear and consumer goods from China, but also severely crimped supply chains for the many businesses that relied on Chinese goods.

After peaking at 22% of all U.S. imports in 2015 and reaching its top share of global exports, China now accounts for less than 13.5% of American imports from abroad. Global data show that its share of worldwide exports also slipped over that period. As the world exits the pandemic and painful inflation strains consumers everywhere, demand for Chinese-made goods has suffered badly.

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You can see this move away from China playing out in several U.S. industries, such as electronics where imports from China fell by $25 billion between 2018 and 2022 as imports from the rest of the world soared and domestic output rose by $51 billion. This is also true with manufacturing, as more of it moves to Mexico to serve the U.S. market, along with a recent bump in domestic production, as companies rush to cash in on subsidies for U.S. facilities to make semiconductors and electric car batteries. Apparel production is moving to cheaper, friendlier Southeast Asian nations. There’s also growing momentum to cut off China from U.S. technology. 

The White House has built on the Trump-era tariffs by sanctioning Chinese firms working in fields like supercomputing, drones, aerospace and surveillance. Exports of U.S. semiconductors to China are down by more than half, due to export controls.

And yet, there’s no easy way to simply walk away from China. While it’s down from its zenith as a global manufacturing powerhouse, China remains deeply embedded in many global supply chains, including those that make valuable or strategic goods. Some types of Chinese imports are soaring, like electric vehicle batteries: U.S. imports doubled in 2021, doubled again in 2022 and are up 58% in 2023.

Car manufacturers and suppliers are racing to build domestic battery factories. But for now, and likely for a while yet, China will have a powerful cost advantage. And then there are rare earth elements, the specialty materials that are needed for a range of advanced products, from powerful electric motors to fighter jets. China continues to dominate in global rare earth processing, arguably powerful leverage in a high-tech world.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter. 

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