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US Imports From Mexico Exceed Imports From China

29.02.2024
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By Brad W. Setser

First, auto manufacturing in North America has finally recovered from the COVID-19 pandemic and the resulting chip shortage. These days, Mexico is a major automobile manufacturer, and as a result, US car imports from Mexico have increased substantially. China has never been a significant supplier of automobiles to the United States, so this is not really driven by a shift away from China. Auto production in Mexico has grown steadily since it joined the North American Free Trade Agreement (NAFTA) with the United States and Canada in 1994.

Second, tariffs imposed by President Donald Trump on trade with China have led to a decline in imports from China. Average tariffs are now around 18 percent, creating a significant incentive for companies to find ways to circumvent this tax. They have done this largely by moving final assembly to Southeast Asia (Vietnam, Malaysia, Thailand), although Chinese firms such as Shein and Temu also widely use the so-called de minimis exception, which allows packages worth less than $800 to be imported into the country duty-free. Because de minimis shipments are not counted in US trade data, the formal import count is clearly an underestimate. China's own data shows that it sells more to the United States than the US says it imports.

The disagreements that currently complicate direct bilateral trade between the United States and China are likely to persist. Joe Biden's administration is still reviewing Trump's tariffs, but any changes it makes will likely involve increasing tariffs on strategic goods (press reports pointed to higher tariffs on electric vehicles) rather than lowering them.

Trump, now the leading Republican presidential candidate, is calling for a 60 percent tariff on imports from China. Naturally, companies are looking for ways to circumvent the tariffs - mainly by creating alternative final assembly facilities. True “risk reduction,” a stated goal of the Biden administration, requires more than simply imposing tariffs and reducing bilateral trade. Solar panels made in Vietnam with Chinese wafers are not subject to tariffs, but their key component still comes from China. iPhones made in India with Chinese-made displays and circuit boards still contain a lot of Chinese content. The same goes for life-saving drugs made from active pharmaceutical ingredients from China.

As the Biden administration has recognized in its supply chain reviews, true risk reduction means creating alternative sources of production for key components of strategically important products.

At the same time, China is actually gaining positions in the world, not losing them. Its exports did fall slightly in 2023 due to a global decline in consumer spending, but Chinese exports of electric vehicles and green products are growing rapidly. An analysis of China's trade developments since the introduction of Trump's tariffs shows that China's exports have increased by approximately $1 trillion worldwide, with exports now accounting for a higher share of China's gross domestic product (GDP) than before the tariffs were imposed.

 

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