The Washington Post says that American companies are trying to reduce their exposure to China. The result is that we're buying less and less stuff from them:
U.S. companies are accelerating efforts to reduce their dependence upon Chinese suppliers, even as officials in Washington and Beijing labor to put a floor under their sour relationship.
Through the first five months of this year, U.S. imports from China were down 24 percent from the same period one year ago, according to the Census Bureau....Foreign investors, meanwhile, are building fewer new Chinese factories, suggesting that other Asian countries will keep increasing their share of U.S. imports at China’s expense.
This stuff is like catnip to me. Usually about five minutes of basic research suggests that these kind of trend stories are mostly nonsense. But this time was different. I checked out import levels and it turns out the Post is right:
In mid-2022, imports from China had grown at roughly the same rate at imports in general. But from August to the start of this year Chinese imports plummeted even as imports from everywhere else stayed steady.
So yes, imports from China are indeed down. This still leaves a bit of a mystery, though: what happened? That is, what happened specifically in the second half of 2022 to account for a sudden and severe decline in imports from China? Donald Trump raised tariffs years ago. Joe Biden announced a ban on selling advanced chips to China last year, but there's no reason that would affect imports. And I don't recall China doing anything in particular to stifle exports to the US. The Post says that various actions on both sides have "chilled commercial ties," but that doesn't really mean anything.
Perhaps this is all a response to pandemic supply chain problems. Companies are starting to reshore their operations outside of China, but that takes a while and it's only showing up now. Maybe. Or it could just be noise in a series that's always been fairly volatile.
Ideas?
It's not just China. I changed the data to index, setting 01-01-2020 as the baseline (100): https://fred.stlouisfed.org/graph/?g=17Dk3
It should be fairly obvious what this bump is.
I had not realized how much the total trade deficit had increased during the pandemic:
https://fred.stlouisfed.org/series/NETFI
and oddly this has not been much of a thing in the media. The recent decrease may be some kind of correction but anyway understanding what is going on now will probably require understanding what went on in with respect to import/export in the pandemic, not just with China.
I definitely got a sense around the time that Biden announced the chip ban and was touting AUKUS that a lot of companies for the first time really internalized that some level of actual conflict with China might be a possibility. Any rational company would adjust their over-exposure accordingly.
Bingo. Business managers are not geniuses and do not have crystal balls, but they are smart enough to read the news and draw a reasonable conclusion from it.
Also: google "China exit ban" and see another contributing factor in this.
Interesting. I knew the CCP often pressures Chinese expats with family members still living in China, but I had not heard of exit bans. I heard about an American fellow who went to China to do exhibition basketball and tried to help someone who was being robbed and got stuck in an awful house arrest for six months.
A couple years back my employer added China to our list of "no travel" countries and "recommends" avoiding personal travel there for this reason.
Still artifact of pandemic?
People have moved from goods to services and travel (ok, so maybe a new car).
Just speaking for myself, but I try to avoid Chinese made products, particularly in the hardware/home improvement vein, because so many that I have bought in the past turned out to be, well, crap.
It's crap de Chine! 😄
(I've been wanting to use that one for a long time.)
Speaking for myself, we bought 22 rooftop solar panels that were made in China. They were less expensive than US-made panels and when we moved nine years later (for family reasons), they were all still working flawlessly.
I'd say (1) it remains to be seen where the series will stabilize, and it might well be returning to baseline, and (2) certainly if *I* were a manufacturer dependent on imports I would rethink supply chains with single points of failure, even if it rose overall costs slightly; it's insurance against the kind of disruption that occurred during COVID and might also occur, eg, due to international tensions.
Over at the Daily Kos a year or more back there was an interesting article looking into the manufacturing obsession with "just in time" and "lean manufacturing". The author pointed out that Japan invented those practices because they had no real choice but to make the most efficient possible use of scarce resources. They didn't have a whole lot of resources to exploit. No major sources of metals, no major sources of coal/oil, etc.
The author called it "skeletal manufacturing" and made the point that: "Nobody would design a manufacturing process like this if they had any other options."
American manufacturers had other options. But the dominance of MBAs insured that manufactures would embrace JIT enthusiastically, because the cost savings of reduced work-in-process inventory was a thing they had been taught to understand.
One vote for noise. No one involved in procurement is going to stick their neck out and recommend anything except the cheapest kind. Second-sourcing is no longer a thing; the new hotness is "strategic partnerships", which is to say, single sourcing.
Repleat with NDA's and non-compete clauses I hope.
Knock-on effects from federal investment in onshored manufacturing? Not that the factories are built yet, but managers may be trying to get ahead of the trend to domestic sourcing.
I suppose it’s too much to hope that Joe Sixpack and family are looking at the “Made in …” markings as they push their carts down the aisle of the UberMart.
There is also the war in Ukraine (with China supporting Putin without really supporting him). It destroys the idea that easy international trade will always be with us. Finding more diverse sources for stuff is one of the answers to this. Especially as Taiwan is there as a constant temptation for China's rulers. Also the tule of law in China is even less evident under this president than under his predecessors which causes uncertainty.
I was wondering about the Ukraine/Russia war as causing U.S. businesses concern as well. It was rather easy for the U.S. to enforce a "no trade" ban on Russia (unlike in Europe where it hurt) but what would be the effect of a "no trade" ban on China for U.S. businesses if China went nuts and invaded Taiwan? And with both parties, as divided as they are, striving to outdo the other on antagonism to China, U.S. businesses might be feeling potentially vulnerable.
What about the effects of the ban on products made with forced labor? I don't know how easy it is to figure out what is made with forced labor and what is not. That might cause some hesitancy to buy from China.
China restricted exports of rare earths deliveries to the US in July.
Not strictly true. Yes, for some time they have restricted exports of the raw metals, but they do encourage exports of rare earth elements in the form of manufactured products.
When businesses develop an acronym - ABC (Anywhere But China) for doing international business it isn't a good sign. The pandemic showed they aren't a reliable trading partner. They put saving face politicly with Covid deaths over keeping the factories open, and businesses came to understand their investments are all tied up under the whims of an opaque leadership that they had no influence over. Many companies also took huge loses when they had to pull out of Russia and didn't want that exposure with China.
The great Thomas Friedman - if they have a McDonalds they won't go to war with us experiment has ended. The old cold war communist bloc was invited in to share in the wealth of capitalism, but the bargain was always that they would move toward a less authoritarian government with stable succession (which is all companies really care about), but not only did they not move in that direction they have actively worked to move the west toward authoritarianism.
Does anyone seriously believe anymore that it 'free trade' was about comparative advantage rather than what it really was, labor and environmental arbrtrage and free flight of capital?
Maybe it's finally soaking in that lack of labor and evironmental protections go iron hand in velvet glove with authoritarianism. Well, at least the jahb creators are finally cogging on to the fact (not that they weren't told this over and over again) that when authoritarianism is not good for business it's going to be very, very bad for business.
Firms are responding to the risk to profits represented by geopolitical issues by diversifying away from China (so called "derisking"). The reason we see this show up sharply in the latter part of 2022 is that, prior to this, imports from China related to the snap-back from the pandemic recession (US GDP was up about 6% in 2021) swamped "derisking" decisions.
With slower growth and inventories already rebuilt, we're now seeing the effects of derisking in our trade flows.
Chinese rebound from 0 Covid was much less robust than expected as well. China has a lot of household debt relative to its household's share of gdp.
Just too risky. Firms are divesting from China, geopolitics sure but also Xi the Pooh's increasingly whimsical rule.
I'm reading some commentary that suggests some of the "replacement" trade (with Mexico, Thailand, Vietnam, etc) is likely to be Chinese firms attempting to get around derisking.
Not sure a lot of people processed how much the effects of China's Zero Covid policy affected international businesses. Repeated shutdowns made doing business in China unreliable. And crackdowns by the Chinese government on whole industries as well as raids of foreign companies only added to the uncertainty. I could see a real change in American business people's attitudes about doing business in China towards the middle of 20022. It takes a while for worries to translate into action but towards the end of 2002 you saw more and more announcements by businesses, including Apple, of moving parts of their supply chain out of China.
That being said, we need Sabermetrics for international trade data which for the most part is still using the equivalent of ERA and batting averages to provide a false picture of what's going on in the international trade world. More products are being assembled in Vietnam (and other countries) but China is also increasingly providing more components than they did 10 years ago. So even as we saw imports into the U.S. from Vietnam increase (and now seeing Chinese imports decrease) that's not an accurate picture of how much the supply chain is diversifying. I do think we'll see a continued diversification out of China but current non-sabermetric trade data is not really telling us how much has occurred yet.
Unable to get replacement parts Aeroflot has deactivated the brakes on some of it's planes,
https://onemileatatime.com/news/aeroflot-flying-planes-without-brakes/#:~:text=Aeroflot%20has%20now%20deactivated%20brakes%20on%20nine%20of,keep%20flying%20these%20planes%2C%20but%20just%20without%20brakes.
Pilots instructed to use reverse thrust.