After 17 years as the top source of imported goods in the United States, China will likely move into second place for 2023, ceding the first position to Mexico, according to data released by the U.S. Commerce Department this week.
The shift is the result of a yearslong trend that has seen a gradual decline in China's share of the U.S. import market, driven primarily by continued U.S. tariffs on a broad array of Chinese goods. However, other contributing factors include a broader reshuffling of global supply chains in the wake of the coronavirus pandemic and a push by the U.S. to diversify sources of important imports away from China and toward geopolitical allies, a process sometimes known as "friendshoring."
The data, which only covers the first 11 months of 2023, show that goods imported from China accounted for 13.9% of U.S. total imports, while Mexican goods accounted for 15%. As recently as 2017, Chinese goods had accounted for more than 21% of U.S. imports, but after former President Donald Trump imposed a series of tariffs on Chinese goods, a policy extended by President Joe Biden, that share has been in steady decline.
Shifting production
Jeff Schott, a senior fellow at the Peterson Institute for International Economics in Washington, told VOA that it is important to be careful when assessing trade flows, to pay attention to more than just the country-level import totals.
For example, he said, many Chinese firms are expanding their overseas production capacity, investing in manufacturing facilities outside the Chinese mainland.
"From what I can see, there has been no analysis of whether Chinese subsidiaries and other countries are increasing their exports to the United States from Southeast Asia and other places," Schott said.
"You have to look more closely into what we're buying from other countries," he said. "And that would be part of restructuring supply chains that is going on both by Western companies and Chinese companies. There's increased Chinese foreign direct investment in Southeast Asia as companies move out of China, both for economic reasons and geopolitical reasons, to produce more in Southeast Asia. And that's affecting, or will affect, the flow of goods from Southeast Asia in the United States."
Friendshoring, or not?
The shifting of production away from the Chinese mainland also makes it trickier to tease out the degree to which so-called friendshoring is responsible for changes in the relative share of U.S. imports accounted for by different countries.
While the United States' increasing reliance on Mexico for imports and a lessening in dependence on China might be held up as a prime example of friendshoring, much of the trend could also be driven by Chinese firms shifting production to Mexico because it has better access to U.S. markets.
"One thing that we're really trying to grapple with, is how much of this is true friendshoring, which is what you'd see if Mexico was buying a lot of basic Chinese components and then really refiguring them and then using them to service the market," Niels Graham, an associate director with the Atlantic Council's GeoEconomics Center, told VOA.
Graham compared that to what he referred to as "shallow" friendshoring.
"China might be sending Mexico almost-finished goods. Mexico is doing the final touches such that they can meet the different criteria that they need to so that this is now a 'Mexican-made' versus a Chinese-made good."
Clear evidence
Scott Lincicome, vice president of general economics at the Cato Institute's Herbert A. Stiefel Center for Trade Policy Studies, told VOA that there is actually plenty of evidence that U.S. tariffs have driven Chinese firms to move production to countries outside China.
He said that there is a clear process involved in getting a ruling from the U.S. Customs Service that intermediate goods made in China have undergone a "substantial transformation" in a third country, such as Mexico, allowing them to be classified as Mexican-made for U.S. import purposes.
Lincicome said customs data shows that in the years after 2018, when the Trump tariffs were put in place, the number of requests for "substantial transformation" rulings related to goods originating in China spiked noticeably.
"Combine that with the academic research showing the rerouting of supply chains, showing Chinese firms doing more business with these third countries, and then these third countries doing more business with the United States, and it's not difficult to see what's going on," Lincicome said.
"It argues against the tariff approach to trade policy: Tariffs are a sledgehammer and they don't actually achieve the goals they set out to achieve," he said. "Importing a made-in-Mexico widget that has 75% Chinese content is not a policy 'win."
Friendlier ties with Russia
Also this week, China released economic data indicating that its overall exports were down in 2023, according to media reports relying on data from Shanghai-based financial data firm Wind Information. Experts told VOA that the decline is likely a result of slowing global demand combined with "base effects." The latter refers to the fact that Chinese exports were so inflated in the previous two years because of the economic bounceback from the pandemic, that 2023's numbers were smaller by comparison.
The data also reflected deepening trade ties between China and Russia, which has had its access to many Western markets blocked by sanctions related to its invasion of Ukraine and the ongoing war there.
In 2023, Chinese exports to Russia soared by 47%, while imports from Russia increased by 13%.
