The deepening confrontation between the US and China is eroding trade ties between the world's two largest economies, with goods from China accounting for the smallest percentage of US imports in 20 years.
Instead, buyers are turning to Mexico, Europe and other parts of Asia for goods ranging from computer chips and smartphones to clothing.
The level of foreign trade between the US and China at lowest level
China accounted for 13.3% of U.S. merchandise imports in the first six months of this year, below the peak of 21.6% for all of 2017. The current level is the lowest since 12.1% for the year in 2003.
The shift began in 2018, when the Trump administration slapped tariffs on a range of Chinese products. During the pandemic, shortages of products such as face masks and semiconductors prompted companies to rethink their supply chains. This year, some companies have stopped relying on China amid an intensifying bilateral battle over high technology. President Biden on Wednesday (09.08.2023) banned investment in certain Chinese advanced semiconductors and quantum computers.
Shifting production to other countries
The loss of China's share of U.S. imports is not the result of a dramatic change in imports from any one product or country. Instead, the trend is driven by a slow-moving supply chain across dozens of industries and countries. One factor has been the shift of production to other Asian countries, specifically Southeast Asia and India.
Since the beginning of 2019, China's share of US imports has fallen below the total share from a basket of 25 other Asian countries, including India, Thailand and Vietnam. That group of countries accounted for 24.6% of U.S. imports in the 12 months ending in June, compared with China's 14.9%, according to census data.
Meanwhile, Mexico's share of US imports equaled that of China in June. The U.S.-Mexico-Canada Free Trade Agreement has made Mexico a strong competitor against China and other Asian nations as a supply base to the U.S.
Mexico's number 1 trading partner
When the dollar values of exports and imports are combined, Mexico is now the U.S.'s No. 1 trading partner, followed by Canada, moving China into third place. The shift reflects a recent decline in the share of U.S. exports to China combined with a longer-term decline in China's share of U.S. imports. China accounted for 10.9% of total U.S. trade during the first half of 2023. Mexico is at the top with 15.7% and Canada is close behind with 15.4%.
U.S. imports of electronics made in China fell by $13.4 billion in the 12 months ending in June compared with a year earlier. China's share of electronics imports fell to 27.9% from 32%.
Smartphone manufacturers diversify their supply chains
The majority of smartphones imported into the U.S. come from China, but its share fell to 75.7% in the 12 months ending in June, according to census data. That was down from several recent peaks above 80%.
Part of the reason is that smartphone makers, especially Apple , are trying to diversify their supply chains outside of China . For example, Apple supplier Foxconn plans to increase production in India . India's share of U.S. smartphone imports reached 5.3% in the year ended June, up from 1.8% in the 12 months ended December.
Companies increase their production in the US, Europe and other Asian countries
Vietnam and Thailand are growing sources of U.S. chip imports. They are becoming hubs for the later stages of chip production, where chips are tested and then packaged into their final form.
Amkor Technology, an American company that specializes in chip packaging, is building a large factory in Vietnam, which it expects to open later this year. Israel is also a growing source of imports, where Intel has some of its most advanced chip factories.
As the U.S. and its allies strengthen policies to restrict the sale and production of advanced chips in China, companies are increasing their production in the U.S., Europe and other Asian countries.