China’s Market Share in the U.S. Shrinks Amidst New Cold War Realities

Economic Fallout of the New Cold War
China’s Declining Position in U.S. Imports
Mexico Overtaking China in U.S. Imports

The economic fallout from the new Cold War structure, where the West, including the U.S., is pitted against China and Russia, is intensifying. China risks losing its top spot in the U.S.’s ranking of goods-importing countries for the first time in 17 years, signaling a narrowing foothold for Chinese products in the U.S. market. In contrast, Chinese cars are thriving in the Russian market, where global car manufacturers have withdrawn and are expected to overtake Japan to claim the top spot in the global car export ranking.

According to trade statistics released by the U.S. Department of Commerce on the 9th (local time), the U.S. imported approximately $393.1 billion of Chinese products from January to November last year. This figure represents a sharp 21.2% drop compared to the previous year. The proportion of Chinese goods in total imports also hit a record low since 2004, at 13.9%. During the same period, the U.S. imported approximately $439 billion of Mexican products, a 4.8% increase from the previous year, accounting for 15.5% of total imports. As a result, China will likely lose its top spot in the U.S.’s ranking of goods-importing countries to Mexico for the first time since 2006.

Factors Behind the Growing Distance

This is a result of the growing distance between the U.S. and China as the new Cold War structure has formed due to Russia’s invasion of Ukraine. The Biden administration in the U.S. is pursuing a friend-shoring policy to build supply chains with friendly countries and a de-risking policy to reduce dependency on China. The Trump administration’s tariffs on Chinese goods worth $370 billion remain in place. Companies adopting the “China Plus One” strategy, which involves adding production bases outside China, have also influenced this trend.

Impact on Chinese Exports: Electronics and Alternatives

Specifically, imports of Chinese goods, such as electronics, which had a high dependency on China, have decreased, and other countries like India have emerged as alternative import countries. Imports of Chinese smartphones decreased by 10% compared to the previous year, but imports of Indian smartphones increased fivefold. Similarly, imports of Chinese laptops dropped by 30%, but those from Vietnam increased fourfold. However, for products that are hard to replace, the U.S. still shows high dependency on China. For instance, the import dependency on China for lithium-ion batteries, essential for electric vehicles, reached 70%.

Experts anticipate a continued decline in the U.S.’s imports of Chinese goods. Niels Graham from the Atlantic Council remarked that it would take several years for the “China Plus One” strategy to impact U.S. import statistics significantly. He projected that this trend is likely to persist over the long term. In addition, the Biden administration is considering imposing tariffs on Chinese electric vehicles and general semiconductors. If this becomes a reality, imports from China will shrink further. The upcoming U.S. presidential election in November, with both the Democratic and Republican parties continuing to take a tough stance on China, is another reason why imports of Chinese goods are expected to decrease.

China Overtakes Japan To Become No.1 in Car Exports

While China’s foothold in the U.S. market is shrinking, it is making rapid strides in the car export sector. According to the Wall Street Journal (WSJ), on the 9th, the China Association of Automobile Manufacturers (CAAM) announced an estimate that China exported about 5.26 million vehicles last year. This figure is a sharp increase of 1.86 million vehicles (54.7%) compared to 2022 (3.4 million). Japan announced that it exported less than 4 million vehicles until November last year. Including the exports in December, CAAM’s analysis suggests that China’s car exports last year were about 1 million vehicles more than Japan’s.

Impact of the Russian Market on Chinese Car Exports

The Wall Street Journal analysis points to the main driving force behind this trend being the surge in sales of internal combustion vehicles to Russia. The escalation of international sanctions against Russia in light of the Ukrainian conflict and Western car manufacturers exiting the Russian market has created an opening that Chinese automakers can quickly exploit. Russia boasts a substantial domestic market, with a population ranking 9th globally at 140 million people. With major automakers retreating from the scene, Chinese car manufacturers are in a favorable position to sell their vehicles in Russia with limited competition.

The volume of vehicles exported from China to Russia last year is estimated to have reached 800,000 units, marking a significant increase compared to the previous year’s figure of 160,000 units. Chinese internal combustion engine manufacturers have been grappling with inventory accumulation issues, primarily driven by the growing popularity of electric vehicles within China. Nevertheless, the resurgence of the export route to Russia has provided some much-needed relief.

Looking at individual companies, China’s Chery Automobile exported about 900,000 vehicles last year, becoming China’s largest car exporter. It also benefited from a surge in exports to Russia. This is a larger scale than the overseas exports of Tesla and BYD. Geely Automobile, China’s largest private car company that owns Volvo Cars, also reported a significant increase in exports to Russia.

Chinese Car Manufacturers and Electric Vehicles

Furthermore, the expansion of the electric vehicle sector is identified as another factor contributing to the rise in China’s exports. BYD, for instance, reported sales of 242,000 electric vehicles in overseas markets last year, a fivefold increase compared to the previous year. The Wall Street Journal forecasts a pivotal shift in the global automotive industry, noting that China’s car exports have surged to unprecedented levels. This trend is expected to expand into electric and hybrid vehicles. With the domestic demand for electric vehicles nearing its peak, Chinese manufacturers are increasingly focusing on the export market.

By. Tae Gyu Lee