The U.S. has not withdrawn from Chinese imports, as the data shows. In 2023, the U.S. deficit with China will fall to its lowest point in more than a decade. At first glance, it appears that this is the decoupling of the two countries' economies caused by the high tariffs imposed by former US ** Donald Trump on Chinese imports in 2018.
Mr. Trump is struggling to get the job done, and if re-elected this fall, he would impose tariffs of 60 percent or more on all Chinese imports.
However, the U.S. has not withdrawn from Chinese imports, as the relevant data shows. Chinese and Western manufacturers have found many ways to circumvent tariffs; If tariffs are raised further, they are likely to ramp up their efforts.
The U.S. Commerce Department said Wednesday that the total U.S. goods deficit last year increased from 1.0 percent in 2022$2 trillion shrunk to $1$1 trillion. As a share of gross domestic product (GDP), it fell to 39%, the lowest level in more than a decade.
Much of the reduction in these figures has been achieved through the reduction of China**. Last year, that figure shrank by more than $100 billion to $281 billion, the lowest level since 2010.
* One reason for the narrowing deficit is that U.S. importers may have ordered too many goods in 2022, causing inventories to ballooze, so imports in 2023 have decreased even as consumption remains strong.
More fundamentally, the narrowing of the deficit exaggerates the extent to which U.S. consumption of Chinese-made goods has declined. As the war heats up, many manufacturers are moving production to other countries to circumvent U.S. tariffs. As a result, the U.S. deficit with Mexico jumped to $152 billion last year, more than double what it was in 2017. U.S. imports to Mexico surpassed China's imports last year for the first time in at least 15 years. The U.S. had a deficit of $105 billion with Vietnam last year, nearly three times what it did in 2017.
In the increased U.S. imports from Vietnam and Mexico, the factors of production for many goods actually originated in China. It's hard to say how many of them there are due to differences in the data. However, a recent report by the McKinsey Global Institute said that while China's share of U.S. manufactured goods imports declined from 2017 to 2020, China's share of the value added of goods consumed by the U.S. actually rose.
In addition, Chinese companies have been taking advantage of a decades-old provision in U.S. law that allows packages valued at less than $800 to enter the U.S. duty-free.
Federal data compiled by Yale University economist Amit Khandelwal and a co-author shows that the number of packages entering the United States under the "de minim" exception has tripled since 2017 to 1 billion last year.
This does not mean that tariffs do not have an impact. Khandelwal et al. found that tariffs reduced imports of affected goods by 30%; Part of this is made up by buying other Chinese, foreign, or American-made goods. The authors estimate that the total cost to the U.S. economy is 004%, losses on the consumer side slightly offset gains for U.S. producers and the U.S. Treasury.
Another study by MIT's D**id Autor and co-authors found that those counties where local businesses could benefit from tariffs slightly increased employment. But on average, the losses from China's retaliation outweigh the benefits. (Still, the study found that the counties gave Trump a political return.)
The fundamental obstacle to economic decoupling between China and the United States is that China's dominance in world manufacturing makes it difficult to find alternatives. The fundamentals of China's economy are that production exceeds domestic consumption capacity, which determines that China must export surplus. As the collapse of real estate investment has weakened economic growth, the ruling CCP has relied more heavily on manufacturing, even though many companies have become unprofitable.
2024 will be a year of overcapacity, and the pressure on Chinese exporters will be enormous," said Joerg Wuttke, Honorary Chairman of the European Union Chamber of Commerce in China. "In the field of wind turbines and solar panels, all businesses are losing money. In the automotive sector, one company makes money, and the other 100 lose money. ”
So, if a 25 percent tariff would do little to reduce America's dependence on China, would a 60 percent tariff be even more effective? Maybe. Khandelwal calculates the impact of the 35% tariff. He estimates that the impact on imports and the resulting costs is much greater, equivalent to 08%。
However, Brad Setser** of the Council on Foreign Relations said China would step up efforts to circumvent or offset higher tariffs. He said: "The motivation to disassemble the product, take out a few screws, find another screw supplier, ship it to a third party, so that it is not 100% Chinese, and then package it for export in a third party." He also said that U.S. companies would make greater use of the de minimis exemption rule.
This does not mean that the United States and China are destined to decouple. From a historical point of view, the changes in the ** chain are gradual. Usually, a step or a component is transferred overseas, and then the entire business ecosystem will be developed. Over time, the Chinese component in US imports from third countries is bound to decrease.
Greenfield FDI to developing countries has remained the same, but the share of flows to non-Chinese and non-Russian countries has risen significantly," said Olivia White, one of the authors of the McKinsey report. "It's consistent with investing in helping these countries build capacity and do more. ”
In an effort to turn India into a mobile phone production base, Apple is moving more of its top performers there. Samsung has adopted the same strategy in Vietnam.
The problem is that Chinese companies are doing the same thing. To circumvent U.S. tariffs, Chinese electric vehicle and battery companies are building or considering new factories in countries with which the U.S. has agreements, such as Mexico, South Korea and Morocco.
To compensate for the decline in exports to the United States, China will depress the renminbi exchange rate to boost exports to countries that have not imposed tariffs and expand the presence of Chinese companies in these economies.
Of course, the U.S. can block the import of these products by imposing tariffs on other ** partners. Trump has proposed a 10 percent tariff on all imports, not just those from China.
However, if it does, it will lead to the decoupling of the United States not only from China, but from the whole world.
Economy