China is turning away from U.S. imports, exacerbated by Washington’s effort to impose controls on the sales of semiconductor manufacturing equipment, as part of a bilateral decoupling, according to a new report by the the U.S.-based Peterson Institute of International Economics (PIIE). Relations between the world’s two largest economies have deteriorated since 2018 when the Trump administration began to impose import tariffs on more than USD300 billion worth of Chinese goods, measures the Biden administration has maintained. In 2022, U.S. exports to China increased by USD2.4 billion compared to a year earlier to USD153.8 billion, while American imports from China increased by USD31.8 billion to USD536.8 billion, according to the U.S. Bureau of Economic Analysis. But despite overall trade showing signs of resilience, the PIIE said that the “widely reported data point was misleading” after it was suggested the supposed economic decoupling had not yet arrived after trade hit record levels in 2022. “Through trade, the two economies are becoming less directly interdependent,” the Washington-based think tank said.
“China is now shifting some purchases of foreign goods away from the United States. Both have the same fear: that the other side will suddenly weaponize trade flows – cut off imports or exports – in the name of security. Trying to get ahead of that, each is now attempting to diversify.” In February 2022, PIIE labelled the U.S.-China phase-one trade deal a “historic failure” after China “bought none” of the additional USD200 billion worth of goods and services over 2020-21 – relative to 2017’s levels – it promised under the agreement, which was signed in January 2020. Before the trade war, manufacturing goods represented 44% of the total U.S. goods and services exports to China. However, by 2022, that proportion had fallen to 41%, although China’s total imports of manufactured goods also fell by 8% last year, PIIE said.
“Newly released data from 2022 show that U.S. exports are falling farther and farther behind foreign peers also selling into the Chinese market,” the PIIE report said. “Once major U.S. manufacturing exports – like automobiles and Boeing jets – have all but disappeared. Semiconductor sector sales tailed off in 2022 and also may not return, because of the new U.S. export control policy. U.S. services exports plunged during the pandemic and have not yet returned.”
According to PIIE, sales of semiconductors and semiconductor equipment to China may continue to decline given the “severe” export controls announced in October. The new restrictions imposed last year included cutting China off from certain semiconductor chips made anywhere in the world with U.S. equipment. The PIIE report also noted that U.S. energy sales are being diverted to Europe, while China has been sourcing from Russia since last year. U.S. exports of farm goods to China rose by 16% in 2022 from 2021, according to PIIE, representing a “silver lining” in bilateral trade. American farmers have become even more dependent on the Chinese market, but buyers in China may be becoming less reliant on the U.S., the PIIE report said. The real news is that U.S. exports to China are one more channel through which the bilateral relationship continues to deteriorate,” the PIIE report said, as reported by the South China Morning Post.
