Where are China’s exports going? Less and less to the US, the latest trade data confirms

From toys and furniture to textiles and clothing, there has been a sharp drop-off in the percentage of US imports from China, and countries such as Mexico are taking advantage
Some Chinese companies have responded by setting up shop in Mexico, near the border, where goods are assembled and then brought to the US

China trade

Ji Siqiin Beijing

Published: 11:00pm, 20 Jun 2023

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An acceleration in supply-chain reshoring is the key reason for 10 consecutive months of declining Chinese exports to the United States, according to trade data, and analysts expect that the fall will continue – with lasting implications for overall exports from the “world’s factory”.

While weak demand caused by a slowing economy and high inflation have suppressed US imports in general, the decline of imports from China has been much more substantial compared with rising imports from countries such as Mexico, according to data from the United States International Trade Commission (USITC).

The drop has led to a sharper shrinkage of China’s share across all major products that it has been the biggest supplier of to the US, since late last year, even after Beijing lifted its strict zero-Covid policy that once caused severe supply-chain disruptions.

The trend is particularly remarkable in textiles and apparel. In the first four months of this year, 20.9 per cent of textiles and apparel that the US imported were from China – down about 4 percentage points from 2022, and almost half of the total seen 10 years ago, according to figures from the Office of Textiles and Apparel under the US Department of Commerce.

Apart from Covid-related supply-chain disruptions and US-China trade tensions, the implementation of the Uygur Forced Labour Prevention Act last June has further discouraged US fashion companies from sourcing cotton products from China, according to Sheng Lu, an assistant professor of fashion and apparel studies at the University of Delaware.

For furniture and toys – two other low-cost consumer products that Chinese factories have long dominated the global supply of – China’s share of US imports plunged well below 50 per cent in January-April – the first time they have fallen below that mark since 2001, figures from the USITC showed.

The assembly of finished goods in the furniture industry is now increasingly being done in Mexico, according to a report this month from Kearney, a Chicago-based management consulting firm.

“In several cases, this trend has been prompted by Chinese companies setting up operations in one of the China-focused industrial parks that have sprung up near Monterrey and other close-to-the-border cities,” the report said.

For mechanical and electrical products and machinery, which account for more than 40 per cent of all Chinese exports to the US, the Chinese share also decreased to 26 per cent in the first four months of the year, down from 30.3 per cent in 2022.

The decline in sourcing from China was partially incentivised by various industrial policies from the US government to attract more companies to invest in the country, including the Chips and Science Act that went into effect in August, the Kearney report said.

While no single country can entirely fill the void left by China, a variety of low-cost Asia-Pacific countries such as Vietnam, Cambodia and India, as well as Mexico, can benefit from the shift, it added.

The United States was China’s third-largest export destination in the first five months of this year, after the Association of Southeast Asian Nations and the European Union, China’s customs data showed. Last year, it was China’s biggest export destination.

With the supply-chain-relocation trend intensifying, China’s exports to the US could continue falling in the short term, according to a report from Everbright Securities in March.

For manufacturing sectors that are also dominated by China, including textiles, the country can offset losses by redirecting exports to intermediaries, such as those in Southeast Asia, the brokerage house said.

But for industries in which the US and Europe dominate key technologies, such as some electrical and mechanical products, the US’ reshoring efforts will have persistent implications for the overall export sector in China, it added.

“In the short term, the contribution of exports to the economy has weakened, and economic recovery should mainly focus on the recovery of investment and consumption related to domestic demand,” the report said.

“In the medium and long term, hi-tech products should be the key to maintaining China’s export advantage.”