Links with US endure amid slow imports

Trade:  Economic ties deeply intertwined

The sharp decline in the value of goods imported by the United States from China — by 25 percent in the first half of this year — is not only due to a drop in consumer spending, but is also a result of "indirect trade" between the two countries, suggesting that their economic links are "enduring" even amid tensions, analysts said.

US goods imports from China were valued at $203 billion during the first six months of 2023, a decline from $271 billion in the same period last year, while two-way goods trade fell by nearly 20 percent, according to data released by the US Commerce Department on Tuesday.

Meanwhile, the latest Chinese Customs data showed that China exported 1.95 trillion yuan ($270 billion) of goods to the US in the first seven months, down 13 percent year-on-year. Overall China-US trade declined 9.6 percent year-on-year to 2.46 trillion yuan during the period.

"I think the decline is mainly due to a slowdown in US household purchases of the various goods produced in China," said Gary Hufbauer, a senior fellow and trade expert at the Peterson Institute for International Economics in Washington.

The top US imports from China so far this year included computers, electronic products, electrical equipment, appliances, components, machinery and chemicals, according to the International Trade Administration.

Hufbauer said the impact of the massive tariffs, imposed on roughly two-thirds of imported Chinese goods during the administration of former US president Donald Trump, was "pretty well" reflected in US imports from China by 2022. Further declines in 2023 mainly reflect changes in household purchasing patterns.

Overall US imports of goods slumped by 1.2 percent to $253.3 billion in June, the lowest level since October 2021, according to official statistics.

"Weakening consumer demand for goods and retreating inventory growth by businesses have softened imports this year, while exports continue to trend downward as the global economic backdrop softens," Matthew Martin, a US economist at Oxford Economics, told Reuters.

Consumer spending aside, Hufbauer said that going forward, "redirected supply chains" will play a larger role in actual US imports from China.

"China is shipping more intermediate goods to countries like Mexico, Malaysia and Vietnam, and then the final products are coming to the US," Hufbauer told China Daily. "I think we will see more of these redirected supply chains in the future."

The drastic drop in US imports of Chinese goods has made headlines in the global media, but overseas China watchers were quick to point out that it does not prove that attempts to decouple will work out.

In an article, "How America is failing to break up with China", published on Tuesday, The Economist noted that China-US economic ties are "more profound than they appear at first glance".

It said the attempt to "de-risk" trade with China is the cornerstone of the White House's foreign policy, but that instead of being slashed, trade links between the US and China are enduring — just in more tangled forms.

"Given that most countries are desperate for the investment and employment that trade brings, the US has been unable to convince its allies to reduce China's role in their supply chains," The Economist authors wrote.

"Many are content to play both sides — receiving Chinese investment and intermediate goods, and exporting finished products to America and the rest of the West," they wrote.

S.L. Kanthan, a geopolitical analyst based in Bangalore, India, wrote on X, formerly known as Twitter, on Tuesday: "Here's why the US is importing less from China: The US buys Chinese goods through other countries! China's exports to intermediary countries like Mexico, Vietnam, India, and Malaysia skyrocketed after 2018… when the US trade war began. So, 'decoupling' is just recoupling."

His sentiments were echoed by Chinese trade experts.

Wang Youxin, a senior researcher at the Bank of China, attributed the sharp drop in US imports from China during the first half of the year mainly to two factors: the softening US demand, especially that for goods, and the US pursuit of nearshore and friendly-shore outsourcing, which means getting work done or services performed in nearby countries or traditional alliances.

He also said that economic ties between China and the US will remain deeply intertwined, although direct trade between the two countries may become weaker due to the shift of productions to outside China amid the ongoing global supply chain reconstruction underpinned by such nearshore and friendly-shore outsourcing practices and additional US tariffs on Chinese goods.

"The US imports have shown an overall downtrend due to weakening demand, especially that from countries including China and Southeast Asian nations, despite an increase in imports from the European Union and its neighbors," Wang said.

"Yet 'decoupling' between China and the US is not possible, because other US trade partners like Mexico and Southeast Asian countries need intermediate goods imports from China to produce goods the US imports," he said.

According to Gao Lingyun, director of the international investment division at the Chinese Academy of Social Sciences' Institute of World Economics and Politics, a strong dollar and relatively high comparison base also contributed to the decline in US import value from China during the first half of this year, apart from factors like weaker US demand for Chinese products.

US direct imports from China may decline, but its imports from elsewhere will contain value added from Chinese intermediate products, he said, adding that "decoupling" is not feasible, even though in some areas direct trade ties will become frayed.