China decoupling starting to gather pace
The latest evidence suggests that the economic ‘decoupling’ of China from the west is starting to gather pace. Decoupling is yet to become globally widespread on the trade side but is increasingly evident in relations with the US. Foreign direct investment (FDI) trends and surveys of China-based Western firms suggest decoupling is likely to be increasingly visible over the coming years.
What you will learn:
- The share of US imports coming from China has resumed its downward trend after briefly recovering during the pandemic. Chinese industries hit by US tariffs have particularly suffered, with US imports from these sectors perhaps 40%-50% lower than they would have been in the absence of tariffs. Besides the US, evidence of trade decoupling is harder to find.
- The US electronics market has shifted decisively away from Chinese suppliers. US restrictions on semiconductor trade with China are starting to bite with US exports to China more than halving since early 2022.
- Trends in FDI, especially greenfield FDI, are likely to be a good indicator of trade trends in the future. Notably, FDI inflows into China have slowed sharply over the last two years, with greenfield inflows in 2022 at just a quarter of the level of a decade ago.
- Surveys of firms in the US and Europe point to a notable rise in interest in relocating some investment and activity outside of China. A deterioration in their perception of China as a market is a key factor, linked in part to geopolitical tensions. The main likely locations for relocations are elsewhere in Asia, but interest in ‘reshoring’ to the US also seems to be on the rise.
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