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US-China Trade: Tensions Mount in Unprecedented Ways

The US Department of Commerce data for the past year indicates a shift in the import of products from China to the United States. In the first eleven months of 2021, the US imported more, in terms of value, from the European Union than from China, which is the second largest economy in the world. This has not happened since 2008, except in 2019 when the trade war between the two countries was in full swing.

According to Robert Koopman, a professor at American University in Washington, companies are looking to diversify their supplies to avoid Sino-US geopolitical tensions, the effects of the pandemic, and disruptions caused by climate risks. Imports from China have recovered in 2021 but at a slower pace than before the start of the trade war, as opposed to purchases from the rest of the world. This is partially due to Chinese investors opening factories outside their country of origin, as well as multinationals wanting to get closer to the US market.

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Vietnamese exports have also seen a rise since 2018, more than doubling their value, thus making that Asian country one of the main trading partners of the United States. Additionally, imports from other Asian countries such as Taiwan, South Korea, and Malaysia are also growing strongly.

Experts are divided on whether or not this is a sign of a decoupling between the US and Chinese economies. The US is spending more on services than on goods, which has an impact on the demand for goods and imports. US regulations, such as the Inflation Reduction Act (IRA) and the Chip Act, are clear indicators of the Joe Biden administration’s desire to disengage from China. However, the intertwining of the two economies is such that a complete decoupling seems difficult to achieve. Over time, a diversification of supplies is expected as manufacturers will no longer put all their eggs in one basket.

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