China will soon account for less than half of cheap U.S. imports from Asia for the first time in more than a decade, new data shows, as Western companies move operations abroad.
According to an annual reshoring index from the Chicago-based management consultancy Kearney, US efforts to reduce dependence on China, as well as price-sensitive US buyers, are driving trade towards cheaper alternatives in Asia.
“By the end of 2023, China’s share of US imports” from low-cost Asian countries, excluding Japan and South Korea, “will definitely drop below 50 percent,” said Patrick Van den Bossche, one of the report’s authors.
The US and China are each other’s largest respective trading partners. According to the Kearney Reshoring Index, which is based on US trade data, Chinese goods made up 50.7 percent of US imports from Asian countries last year. That was a drop from nearly 70 percent in 2013.
While exports from China, once hailed as the world’s factory floor, have declined, imports from Vietnam have doubled in the past five years and tripled in the past decade, according to the Kearney Index. India, Taiwan and Malaysia have also contributed to a higher share of products from Asia consumed by Americans.
“U.S. imports from other countries, such as Vietnam, are on the rise as manufacturers move production out of China,” said Tu Xinquan, dean of the China Institute for WTO Studies at the University of International Business and Economics in Beijing.
The relocation of manufacturing from China was initially spurred by protectionist import tariffs on Trump-era goods, as well as labor shortages in China that drove up wages and costs.
But trade segregation among the superpowers has accelerated under the Biden administration, which is pursuing an economic security agenda amid tensions over issues ranging from advanced semiconductor technology to Beijing’s threats against Taiwan.
New US laws “continue to drive more investment away from China to the US and Mexico when it comes to, for example, the production of semiconductors (and) batteries for electric vehicles,” Van den Bossche said, citing legislation such as the Inflation Reduction Act and the Chips and Sciences Act, which provide grants to encourage chipmakers to rethink their activities.
In a March report, Morgan Stanley analysts said, “Rising labor costs in China, geopolitical tensions and human rights concerns have encouraged other companies to rely less on Beijing as the world’s factory.”
“The unbundling of the two economies has led to a homecoming of critical manufacturing and a shift of imports from China to the Association of Southeast Asian Nations, India and Mexico,” they added.
Container volumes also reflect a shift in US imports from other low-cost Asian markets at the expense of China.
China’s share of total U.S. container imports fell from a peak of 42.2 percent in February last year to 31.6 percent in March this year, though it has since risen again as the economy reopens after pandemic controls, it said in a statement. Canada-based logistics technology company. Descartes. The share of India and Thailand grew slightly between February 2022 and April 2023 to 4.1 percent and 3.8 percent respectively.
Phoebe Gao, of shoemaker UT Footwear in China’s southern coastal province of Fujian, said some manufacturers are aiming to offer more expensive products and improved services to compete with “basic styles” offered by cheaper suppliers abroad.
Some manufacturers are looking even further afield, expanding their presence in Southeast Asia and beyond as global inflation rises and wages rise. Water heater maker Guangdong Vanward New Electric said it is opening production sites in Egypt and Thailand in response to demand from US customers.
“You get closer to the market or you get closer to your resources,” said Simon Goh, general manager of Arise IIP China, which operates industrial industrial zones in partnership with local governments in Africa. “If you look at Africa, if you look at other places, you also see tremendous growth (labour supply).”
But there is a limit to the share of production in China that can practically be replaced elsewhere, Van den Bossche van Kearney said, citing chemicals in particular.
A 2019 Deutsche Bank study of 719 products for which the US relied on China found that 95 percent of them could be sourced elsewhere in Asia. The 38 remaining items “consisted largely of chemical and related goods,” the report said.
Additional reporting by Gloria Li in Hong Kong