Tariffs largely failed to curb reliance on China: Report

The United States has failed to significantly reduce its dependence on Chinese goods and services through tariffs, according to a new report from the Peterson Institute for International Economics.

Previous PIIE data showed China's share of US imports fell from about 22 percent in 2017 to 9 percent last year. The research also estimated that Chinese exports to the US fell 60 percent since President Donald Trump started imposing tariffs on Chinese goods in his first term.

The latest report found that the actual drop in exports arriving in the US was only about 2 percent when factoring in indirect imports.

"Basically, this decoupling is not happening," said Mary Lovely, senior fellow at PIIE, in an online discussion last week about a report released in August that she coauthored with her fellow researcher Christine Wan.

The study looked beyond direct imports from China and collected data on Chinese components in products exported to the US from third countries.

Lovely explained that the conclusion of the report was that the tariffs, as "this very blunt instrument", did not meaningfully reduce trade coming into the US from China.

The conclusion refutes claims by the US administration that goods have been shipped through a third country to dodge tariffs — a process called transshipment. Rather, third countries like Vietnam and Mexico are value-added "connectors" that use Chinese content or components, according to the report.

The White House claimed that $40 billion to $303 billion in Chinese goods came to the US through transshipment annually, but Lovely said this lacked an "empirical basis".

"Chinese content coming into the US indirectly has really increased as an overall share of what we consume from China," Lovely said. "About a quarter of what we consume from China is coming in indirectly."

The figures may even be undercounted, Lovely said, because Chinese-owned factories are involved in some of those third-country operations via China's outward FDI.

Lovely said their research showed other countries' supply chains are not changing like those of the US, and that the tariffs subject US companies to higher costs compared to Germany, Japan and other G7 countries.

"Why do I say higher costs? Well, because these work-arounds actually raise costs for American companies," Lovely said. "Much of what we import from China is intermediate inputs that are used in American factories and for American manufacturing."

As a result, the supply chains that serve the US "are becoming increasingly idiosyncratic, isolated, higher cost, less transparent", not conducive to US competitiveness as well as economic security, she pointed out.

The blanket tariffs on almost all countries imposed during Trump's second term "mean that this impetus that firms have to move away from China is much reduced," she said.

In fact, some companies that left China due to the US tariff policy are heading back to China, a recent report by Reuters said.

"While there is not yet hard data showing how much sourcing is returning to China, some buyers who shifted production elsewhere said they are keeping or restoring Chinese suppliers because factories abroad struggle to match their skilled labor, supplier networks and reliable power," the agency reported.

Reuters reported that supermarket chain Target has moved some orders back to Chinese suppliers "citing supply-chain disruptions and production constraints".

The US administration's other tools — Agreements on Reciprocal Trade, or ART, and new customs rules — pressure other countries to align with US trade preferences, but they have yet to be ratified by other countries or codified in US law, and could evaporate quickly.

Such maneuvers often meet with resistance, as demonstrated by the recent trade friction with Canada, which, even without an ART, viewed a series of requests from the US as an impingement on its sovereignty, Lovely said.