U.S.-China Trade Grows as Spy Balloon Raises Tensions

Date: Friday, February 10, 2023
Source: Wall Street Journal

WASHINGTON—U.S. commerce with China is on the rise, despite escalating national-security tensions over matters such as last week’s downing of a suspected Chinese surveillance balloon.

U.S. imports of goods from China totaled $536.8 billion in 2022, a 6.3% increase from the prior year and close to the record $538.5 billion reached in 2018, the Commerce Department said earlier this week. U.S. exports to China grew 1.6% to $153.8 billion last year, pushing the total commerce between the two countries to a record $690.6 billion. The figures aren’t adjusted for inflation.

The trade figures came as the balloon incident further inflamed geopolitical tensions between the two nations. Secretary of State Antony Blinken last week postponed a visit to Beijing aimed at steadying relations. China has protested the U.S. military action, which took place over U.S. territorial waters.

The expansion in U.S.-China commerce last year reflected strong growth in U.S. trade with the rest of the world but came despite efforts by President Biden and former President Donald Trump to curtail trade with China. Mr. Biden has kept in place tariffs covering hundreds of billions of dollars in Chinese goods that were initially levied by the Trump administration.

The president has also accelerated the use of export controls targeting Chinese technologies and clamped down on imports of items linked to the use of forced labor, such as cotton and solar panels.

“A very large and integrated trade and investment relationship is pretty tough and pretty durable and has a tendency to weather political ups and downs,” said Ed Gresser, a former assistant U.S. trade representative who is now at the Progressive Policy Institute, a Washington think tank. “So far that’s more or less been the case.”

China is a dominant supplier of many products that are in demand in the U.S., including cellphones, personal computers and solar panels, economists and trade-industry executives say.

“China is very competitive at making things. They can provide very large quantities of products in a short amount of time with a lot of variety,” Mr. Gresser said.

While U.S. tariffs cover a long list of Chinese products, they left many popular products untouched. That made it possible for U.S. imports of items such as cellphones, laptops and videogame consoles to surge during the pandemic.

According to an analysis by Chad Bown, a senior fellow at the Peterson Institute for International Economics, U.S. imports of products not covered by tariffs grew 50% between July 2018 and August 2022, while imports of the products subject to 25% tariffs fell by 22%. Those tariffs often target intermediary products such as semiconductors, auto parts and steel.

“Those companies sourcing products that face U.S. tariffs have an incentive to look outside of China for suppliers, while those sourcing products from China that do not face U.S. tariffs can keep on keeping on,” Mr. Bown said.

Still, China’s share of U.S. imports is down from levels before the Trump tariffs were put in place in 2018. In a strategy known as “China plus one,” companies, many of which were comfortable relying entirely on Chinese products previously, have diversified their purchases to include countries in Southeast Asia and Mexico. Between 2017 and 2022, U.S. goods imports from Vietnam grew 174%, from Taiwan 117%, and from India 76%.

Higher growth in trade with other regions meant that China’s share of U.S. goods imports fell to 16.5% in 2022 from 21.6% in 2017, while the share of the rest of Asia jumped to 24.8% from 20.9%. European Union nations and the United Kingdom accounted for 19% of U.S. goods imports in 2022, roughly the same as in 2017.

“In boardrooms, there’s a serious rethink about both outbound investments and also supply chains,” said Craig Allen, president of the U.S.-China Business Council, a group that represents large U.S. companies with business ties to China. In a recent survey by his group, roughly two-thirds of the member companies said they were taking a wait-and-see attitude about future investment into China.

Still, Mr. Allen says U.S. businesses should maintain a strong presence in China’s fast-growing market. “The U.S. should be de-risking from China, not decoupling from China,” he said. “We want to grow with China’s growth.”

The increase in trade with China last year came as overall U.S. commerce with the rest of the world grew robustly. Imports of goods and services soared 16% and exports jumped 18%, pushing the trade deficit to a record $948 billion. The 2022 goods and services deficit between the U.S. and China was $382.9 billion.

Tensions between Washington and Beijing are likely to weigh on the relative position of China in the U.S.’s overall trade picture in the coming years, economists and trade industry executives say.

The Biden administration is gearing up this year to implement programs to shore up domestic manufacturing with hefty subsidies and “Buy America” requirements for taxpayer-funded projects to use domestic products.

Among them are the Chips Act, which pumps $53 billion into domestic semiconductor manufacturing, research and development. The Inflation Reduction Act allocated $369 billion for energy-security and climate-change programs, including electric vehicles and solar panels. China has a significant presence in both industries.

“I will make no apologies that we are investing to make America strong. Investing in American innovation, in industries that will define the future and that China’s government is intent on dominating,” Mr. Biden said in his State of the Union speech Tuesday.

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