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Import Zamescheniye: Replacing Imports with Imports in the Age of Trade Wars

This is a syndicated repost published with the permission of True Economics. To view original, click here. Opinions herein are not those of the Wall Street Examiner or Lee Adler. Reposting does not imply endorsement. The information presented is for educational or entertainment purposes and is not individual investment advice.

Trump trade wars have led to increasing evidence of substitution by Chinese exporters to the U.S. with exports via third countries and supply chain outsourcing from China to other destinations. While direct evidence of these trends is yet to be provided (data lags are substantial for detailed flows of goods across borders) and is never to be treated as fully conclusive (due to differences in trade goods designations), here is some macro-level snapshot of latest data on U.S. imports shares for selective countries:

The chart above shows that based on trends, U.S. imports arrivals from China are down in 2017-2019, and they are up, significantly for Vietnam and Taiwan, with less pronounced evidence of imports substitution from other Asia-Pacific countries.

Given several caveats (listed below), the above chart is a ‘messy’ one:

  1. Supply chain substitution takes time and may not be fully reflected in the 2018 data, or to a lesser extent, in 2019 data to-date; and
  2. The above chart is based on monthly frequency data, which is volatilion (e to begin with.
With these caveats in mind, here is a chart based on annualized data:
Now, it is easier to spot the trends:
  • China exports to the U.S. are down, sharply, especially considering pre-Trade Wars averages against Trade Wars period 2019 averages;
  • Vietnam, Taiwan and Mexico are major channels for trade/import substitution (using Kremlin’s term “import zamescheniye”).
  • Japan and Thailand are smaller-scale winners.
  • Malaysia and Indonesia are basically static.
Now, historically, China has been beefing up its corporates’ use of Vietnam, Thailand, and Mexico as platforms for supply chain diversification, which is consistent with the data responses to the Trade Wars. Indonesia and Malaysia are two surprises in this, although both experienced uptick in FDI from China in late 2018, so the data might not be showing these investments, yet.

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