China Buys Less from the U.S.

Exports Continue to Decline

Perhaps the knowledge that a U.S.-China trade war will continue, and likely intensify, has us all acutely aware of changes to the flow of commodities between our two nations. But despite a trade war, Chinese demand for U.S. goods has been in a decline since 2017. At this point in the year the value of products that have left the United States headed for China has come in below earlier projections. As the world’s second largest market, China was projected to increase imports by 2% this year, but so far we have only seen a .5% increase. 

Tariffs may have drawn a distinctive line in the sand but, non-tariff trade barriers have also played a big part in keeping American products from reaching Chinese markets. These restrictions coupled with low Chinese consumer spending, equals falling demand for U.S. goods. In addition, an overarching shift in the landscape of global trade relationships has equipped Chinese to buy elsewhere. These individual influencers have shaped the data reflecting the fact that every year China buys less from the U.S.  

Weak Domestic Demand

The health of China’s economy has come under a lot of scrutiny in light of a multi-nation effort to slow the flow of cheap Chinese goods. An intentional decision backed by government policy to pour investment into production facilities has made it possible for China to grow into an export giant. Beyond their own borders, China has invested and loaned billions of dollars to countries all over the world for the sake of export efficiency supported by robust infrastructure. 

Rather than become a catalyst for financial stability, China’s investments have led to the overproduction of goods. Without enough markets to absorb these goods, debt ridden Chinese companies have been forced to sell their products at extremely low prices for the sake of moving the merchandise. And, as a result, their own domestic economy is crippled. It's hard to say how long the country can sustain a barely breaking even dynamic before production facilities are forced to shut down. 

In the meantime, Chinese citizens aren’t taking risks when it comes to spending. Even with government aid efforts there is an air of caution on the part of consumers whose spending habits are now influencing the U.S. economy.

Trade Barriers

But, even if Chinese consumers were being a bit more free with their finances, they might not be purchasing American products.  Non-tariff trade barriers have played a significant part in the decline of U.S. exports making it into Chinese markets. According to a study conducted by the Stanford Institute for Economic Policy Research that measured the effect of trade barriers on U.S. exports to China between 2015 and 2020, non-tariff barriers increased by 56%.

These informal obstacles are typically brand new permitting procedures or surprise inspections which in this case, target agricultural goods. The unofficial barriers added to a weakening domestic economy for China because they did not generate any revenue for additional aid packages that could have built economic momentum. As a result it has become increasingly difficult for the U.S. to trade with China, a country who has represented one of our largest agricultural export markets. 

A Changing Global Trade Dynamic

China’s work to build supply chain infrastructure around the globe has strengthened agriculture in South America. They no longer have to depend on American crops when they can purchase soybeans, corn, and beef from their newer trade partners, Brazil and Argentina. American crop prices have been undercut by South American production suggesting that even without a trade war China might still purchase at the cheaper prices and make use of the supply chain routes they had a part in building. But, a strengthening relationship between China and South America has worked to shake up global trade dynamics as countries like Colombia, Peru, and Brazil ramp up commodity production and China continues to open their market to these partners.

Even when China did make a large purchase of U.S. soybeans it seems that they did so to take advantage of cheaper prices and in turn strengthen domestic food security and not as a move to strengthen trade relationships. In general, any uptick in trade between the two countries has been attributed to a race to avoid increasing tariffs and  potential port strikes that could affect the flow of goods in the coming months.

A pandemic and current inflation dynamics may have overshadowed the fact that China isn’t taking our goods. The more time passes, the more it seems the U.S. is losing access to a very large market.