From Noah Smith's blog post: ... ... ... ... ... ...
From Noah Smith's blog post:
If there’s one broad consensus in American policymaking circles today, it’s that global supply chains need to become less dependent on China.
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What’s astonishing is that this already seems to be happening, much faster than one might have naively predicted. China’s share of U.S. imports, which already took a hit from Trump’s tariffs before rebounding somewhat in the pandemic, is now falling relentlessly:
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But a few people are claiming that this change is a statistical illusion, and that U.S. dependence on Chinese imports hasn’t fallen. In a recent pair of articles, The Economist declares that “Joe Biden’s China strategy is not working” and offers to tell us “How America is failing to break up with China”.
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The way we normally count imports and exports only takes into account where the final assembly was done; it doesn’t count the value of the components that the assembler has to import in order to create the final good. So when you see a label on your phone that says “Made in Vietnam”, the screen, the processor, the memory, the camera, and other components may not have been made in Vietnam. The true amount of economic value that each country exports to each other country is the amount it contributes to the final product, which is called “value added”.
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In fact, over much of the past 20 years, China’s trade surplus with the U.S. was much smaller in value-added terms than in gross terms. Because China used to import most of its high-value components from Japan, Korea, Taiwan, etc., the actual amount it exported to the U.S. was much less than the headline amount. In recent years this gap has shrunk to a modest size, due to China’s onshoring of component manufacturing.
So anyway, when The Economist says that decoupling is “phoney” and “China’s dominance [of supply chains] is undiminished”, it means that although China is exporting fewer finished goods to the U.S., it’s exporting the same amount of value added.
Startlingly, however, The Economist provides no actual data to support this claim.
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It still might be true that China’s value-added share of U.S. imports has remained constant! Until we get the value-added trade data from the OECD — which comes out with about a 5 or 6 year lag — we won’t really know for sure.
But there are reasons to think that at least part of the drop in U.S. dependence on Chinese imports is real — at least, the recent drop in the last couple of years. First, Chinese exports overall are down substantially from 2021:
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To the extent that falling investment in China is due to corporate de-risking, it’s probably eventually going to spread all the way up the supply chain. If you’re a U.S. company that moves production from China to Vietnam because of the risk of war, and your Vietnamese factory is importing most of its parts from China, you’ll know it. And you’ll know that you’re still exposed to China risk, and you’ll look around for alternative places for your Vietnamese factory to get its parts and components. That might take time — years even, given China’s dominance of manufacturing. But as long as the risk of conflict stays high for years, companies will keep looking for ways to build entire supply chains that never run through China.
From Noah Smith's blog post:
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