Four years into the trade war, China has lost significant U.S. market share in IT hardware and consumer electronics to Mexico and Taiwan, though its exports of low-end semiconductors have not yet been fully replaced, a new study has found. Former U.S. President Donald Trump imposed a 25% tariff on Chinese-made network servers, modems, routers, wireless headphones and smartwatches in 2018 when he fired the first salvoes in the trade battle. Since then, U.S. imports from China of IT hardware and consumer electronics have slumped 62%, whereas imports from the rest of the world are 60% higher, the Peterson Institute for International Economics (PIIE) said in the study. China’s share of U.S. imports for these products has been cut by nearly two-thirds, from 38% to 13% in four years, with Mexico and Taiwan now “sizable” foreign suppliers.
But as to semiconductors, the U.S. has not fully replaced the loss of Chinese imports, PIIE said. China accounted for 47% of U.S. chip imports by volume before July 2018, but its share fell to 39% immediately after the tariffs were imposed, PIIE said. China’s foundries specialize in “more mature nodes”, producing a high volume of basic semiconductors – also known as “legacy” chips – that have lower profit margins. These products are unattractive to chip making giants such as Taiwan Semiconductor Manufacturing Co (TSMC) or South Korea’s Samsung, which prefer to produce more advanced and profitable chips, PIIE said.
“Given that legacy chips are not particularly profitable to manufacture, and if the United States does not want to import them from China, then who will produce them? That is the question facing America’s industrial consumers – like the auto sector – of large volumes of legacy chips,” PIIE said. The auto sector is one of the industries that have had to scale down production as a result of global chip shortages. Semiconductor supply fell early in the coronavirus pandemic, triggered by factory closures. Sales of electronic devices then soared because of the working-at-home trend, which led to an imbalance that grew worse over time.
Despite tariffs, U.S. imports of exercise equipment and lithium batteries from China have jumped considerably, the PIIE report said. China now has more than 50% of the U.S. market for both products, thanks to rising demand for treadmills, rowing machines and electric vehicles among U.S. consumers.
Products that are exempt from U.S. tariffs – including laptops, computer monitors, phones, video game consoles and toys – now account for 27% of total U.S. imports from China, up from 21% before the trade war started. According to PIIE, there is some evidence of China-U.S. trade decoupling, which has come at the expense of American businesses. The phase-one trade deal between China and the U.S. expired at the end of last year, with an earlier PIIE report calling it a “historic failure” after China bought only 57% of the U.S. exports it had committed to purchase, the South China Morning Post reports.
