New data reports by the Financial Times reveals that China's share of low-cost imports from Asia to the United States will soon drop below 50 percent for the first time in over a decade.
This shift is driven by Western companies relocating their operations out of China, as well as price-conscious American buyers seeking alternatives in Asia. According to Patrick Van den Bossche, one of the authors of the Kearney Reshoring Index, China's portion of low-cost imports from Asian countries (excluding Japan and South Korea) will definitely fall below 50 percent by the end of 2023.
China and the US are each other's largest trading partners. However, Chinese goods accounted for only 50.7 percent of US manufactured imports from Asian countries last year, according to the Kearney Reshoring Index based on US trade data. This is a significant decline from nearly 70 percent in 2013. Meanwhile, imports from Vietnam have doubled over the past five years and tripled over the past 10 years, indicating a rising trend. India, Taiwan, and Malaysia have also increased their contribution to the products consumed by Americans from Asia.
The shift in manufacturing away from China initially began due to protectionist tariffs imposed during the Trump administration, as well as labor shortages and rising costs within China. However, under the Biden administration, trade segregation between the US and China has accelerated, driven by concerns over economic security and various issues such as advanced semiconductor technology and Beijing's threats against Taiwan.
New US laws and legislation, such as the Inflation Reduction Act and the Chips and Sciences Act, have further encouraged investments away from China and into the US and Mexico, particularly in areas like semiconductor manufacturing and electric vehicle batteries.
The changing landscape is evident in container volumes, with China's share of total US container imports declining from a peak of 42.2 percent in February of last year to 31.6 percent in March of this year. However, as China's economy reopens from pandemic controls, its share has rebounded. India's and Thailand's shares have slightly grown during the period from February 2022 to April 2023.
As global inflation rises and wages increase, some manufacturers are expanding their presence in Southeast Asia and other regions. For example, water heater producer Guangdong Vanward New Electric is opening production sites in Egypt and Thailand to meet the demands of its US clients. Other companies are exploring opportunities in Africa due to the region's growing labor supply.
However, there are limitations to replacing China's manufacturing share elsewhere, especially in industries such as chemicals. A Deutsche Bank study from 2019 found that out of 719 products for which the US relied on China, 95 percent could be sourced from other Asian countries. The remaining 38 items primarily consisted of chemical and related goods.