China’s Direct Exports to U.S. Are Down, While Its Indirect Exports Are Up

June 4, 2019 (EIRNS)—A June 1 article in Nikkei Asian Review, “Chinese Goods Navigate Alternate Trade Routes to U.S. Shores,” reporting an analysis of trade in China’s major export products for the U.S. market during the first quarter of 2019, shows the relative futility of “punitive” tariffs directed at a single “adversary” country, as opposed to broad protective tariffs to allow certain home industries to develop, as in the original policy of Alexander Hamilton. While some nations may be granted reciprocal exemptions to a broad protective tariff—as was particularly practiced under President William McKinley’s administration—trying to force down exports from a single country as a means of compulsion, simply makes other countries unwitting targets.

Nikkei said that it analyzed first-quarter data from the U.S. International Trade Commission and the International Trade Centre, and found that China’s most important export products are continuing to go to United States, but through Vietnam, Taiwan and Mexico. Their categories were the top five Chinese exports to the U.S.: 1) machinery and parts 2) electrical equipment and parts 3) furniture 4) toys 5) automobiles and parts. Of these, only toys have not been subject to new 25% American tariffs. These are very big export categories, and their direct exports to U.S. dropped 15% in first quarter relative to the same quarter in 2018.

But Chinese exports of the same products rose by 20% to Vietnam, 23% to Taiwan and 14% to Mexico. Vietnam’s exports of these products to the United States rose by 58%; Taiwan’s by about 31%; and Mexico’s by about 7%. Overall, these three countries’ exports of these products would have “offset” about $8.8 billion of the $12.2 billion drop in direct exports from China to the United States.

Nikkei concluded, “These developments come as companies with production bases in China are increasingly suspending or reducing direct exports to the U.S., while sending materials and parts to other Asian countries and to Mexico, where they are made into finished products and then shipped to the U.S.” They name both U.S. and other multinational companies, and Chinese companies.

U.S. agricultural exports to China are effectively indirect—they take place through food-products multinationals which can be considered “third countries”—and this may explain why the ups and downs of such exports over the past six months have seemed unrelated to the tariffs imposed by China.