How’s the Decoupling From China Going?

Efforts by the United States, Europe, and Japan to break their dependence on Chinese trade seems to be progressing.
How’s the Decoupling From China Going?
Workers make pods for e-cigarettes on the production line at Kanger Tech, one of China's leading manufacturers of vaping products, in Shenzhen, China, on Sept. 24, 2019. (Kevin Frayer/Getty Images)
Milton Ezrati

A recent raft of data shows reasonable success of efforts by the United States, the European Union, and Japan to diversify sourcing away from China. China’s trade with each of these important markets has diminished appreciably.

To be sure, the figures may exaggerate the degree of success. Chinese business has repositioned itself into third countries and otherwise transshipped goods through other countries to avoid tariffs and other strictures imposed by these rich nations, and those operations do not count in the China trade data. Though such maneuvering may have muddled the statistical evidence, it might make less difference on a practical level since the point of decoupling—or “derisking,” as the Europeans like to say—is to reduce vulnerabilities to Beijing’s bullying, and the business shift to third countries has that effect in its own way.

Probably the most striking fact to emerge from this recent raft of data is that China has lost pride in its place as the biggest exporter to the United States. That distinction now goes to Mexico. Most of this is because of the independent efforts of American buyers to diversify away from China. Those efforts have raised the relative importance of other countries as well. American smartphone imports from China fell some 10 percent in 2023 through November, the most recent period for which such data exists, while imports of laptops have fallen by 30 percent. Imports of the former from both India and Vietnam have each quadrupled, albeit from a low base.

Overall, European figures are less complete, but Berlin reports that German imports from China were down by some 13 percent over the past year. Preliminary reports show that despite the long period of developing trade relations between China and Germany, the United States may have surpassed China as an exporter to Germany.

Japan and South Korea also show disengagement from China. The statistical evidence reflects the complex nature of the relations between these two economies and China. Much of the trade between China, South Korea, and Japan revolves around Japanese and South Korean operations set up in China. Japan and South Korea export parts, components, and supplies to their China operations and import the finished products back to their domestic markets. The data on imports from China may not yet be available. Still, data show that Japanese and South Korean exports to China have fallen, indicating a de-emphasis on their China-based operations. It is also telling that at the same time, Japanese and South Korean exports to the United States have increased and now surpass their exports to China.

The only regions where China trade has seen advances are in economies that depend on exports of raw materials and agricultural goods. Thus, Brazil’s trade with China has surged. Exports from Brazil to China rose last year to levels some 60 percent above pre-pandemic levels, while Brazilian imports from China have risen 50 percent, both from a low base.

Australia, too, has seen its trade with China grow. Its exports to China rose by 17 percent in 2023. This figure might overstate future potential and may instead only reflect a catch-up to old trade levels now that Beijing has removed the punitive tariffs it put on Australian imports in 2020.

Russia has also seen a surge in trade with China, mainly exporting energy and importing mostly consumer goods. The Russian connection will likely continue to grow as long as the West maintains the strictures on Russian trade put in place over Moscow’s invasion of Ukraine.

The result of these movements is a marked shift in the composition of China trade. According to Beijing’s General Administration of Customs, the share of China trade—both imports and exports—accounted for by the United States fell by 2.5 percentage points between 2018 and 2023. Japan’s share has declined by almost 2 full percentage points, and South Korea’s by about 1.5 percentage points. Europe’s share has dropped by about half a percentage point. In contrast, Russia’s share has jumped by 2 percentage points, while Brazil and Australia have seen their shares rise by half a percentage point each. The share accounted for by the Association of Southeast Asian Nations (ASEAN) has risen by some 2.5 percentage points, but that is less because of shifting preferences than because ASEAN is showing relatively rapid growth. These may seem like small shifts, but in the general run of such accountings, this is a remarkable move in a relatively short time.

This picture, as far as it goes, certainly does speak to a considerable degree of decoupling from China by some of the world’s most powerful economies. And it isn’t likely to reverse any time soon. It has been building for years. It began for the United States in 2018 when then-President Donald Trump imposed steep tariffs on Chinese goods coming into the country. He added to those tariffs in 2019.

President Joe Biden has kept all these tariffs in place and added bans on selling advanced semiconductors and semiconductor manufacturing equipment to China, as well as American investment in Chinese technology. More recently, his administration has floated the idea of imposing a 25 percent duty on imports of Chinese electric vehicles.

Meanwhile, Japan has strived to lead an international effort to procure rare earth elements away from China. Brussels has taken steps to impose penalties on China for flooding European markets with cheap electric vehicles.

No doubt, Chinese business will continue, as it has since the first Trump tariffs, to avoid such strictures by setting up operations in third countries, such as Mexico and Vietnam, or simply transshipping Chinese goods through other countries. These actions may get around tariffs, though Washington is taking action to stop that. Such actions will certainly muddle interpretations of the available data. But they nonetheless weaken the power of Beijing to affect product flow, which, after all, is the point of decoupling in the first place. The pattern of decoupling or derisking clearly has legs.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
Milton Ezrati is a contributing editor at The National Interest, an affiliate of the Center for the Study of Human Capital at the University at Buffalo (SUNY), and chief economist for Vested, a New York-based communications firm. Before joining Vested, he served as chief market strategist and economist for Lord, Abbett & Co. He also writes frequently for City Journal and blogs regularly for Forbes. His latest book is "Thirty Tomorrows: The Next Three Decades of Globalization, Demographics, and How We Will Live."
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