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China’s Exports to the U.S. Through Vietnam and Mexico Escalates Trade War

Daniel Kim Views  

As the U.S.-China dispute intensifies, China’s detoured exports to the U.S. through Vietnam and Mexico have surged. With the U.S. presidential election approaching, sanctions against these detoured exports are likely, prompting calls for a thorough response from the government and businesses operating in these regions.

According to a report titled “Analysis of China’s U.S. Detoured Export Trends,” released by the Korea International Trade and Commerce Research Institute of the Korea Trade Association on the 6th, China’s exports to the U.S. through Vietnam and Mexico have doubled from 2018 to 2022.

China’s detoured exports to the U.S. through Vietnam increased from $1.57 billion in 2018 to $3.02 billion in 2022, while those through Mexico rose from $5.3 billion in 2018 to $10.55 billion in 2022.

A review of the final destination of Chinese exports using the ADB MRIO (Multi-Regional Input-Output) model revealed that China’s detoured exports to the U.S. through Vietnam surged after the implementation of Section 301 of the Trade Act and the Uyghur Forced Labor Prevention Act in 2019.

In terms of industries, detoured exports increased in areas such as textiles (+$610 million), metal processing (+$370 million), and electro-optical equipment (+$300 million), which are significant products of the Xinjiang region in China targeted by the Uyghur Forced Labor Prevention Act.

The increase in China’s exports to the U.S. through Mexico was notable in the fields of electro-optical equipment (+$1.71 billion), pulp and paper products (+$1.02 billion), and transportation equipment (+$760 million). This is due to U.S. sanctions against China and the influence of the United States-Mexico-Canada Agreement (USMCA) and the Inflation Reduction Act (IRA). The USMCA and IRA provide incentives for the production of transportation equipment in North America, leading to an increase in the construction of Chinese production bases in Mexico.

The U.S. import trend confirmed China’s avoidance of sanctions by utilizing Vietnam and Mexico. As a result of the U.S. raising tariffs on Chinese products in 2019 under Section 301 of the Trade Act, imports from China for these items fell from $320.9 billion in 2017 to $233.5 billion in 2023, a decrease of 27.2%. The import dependency also dropped by 7.5 percentage points.

On the other hand, imports from Mexico increased by $155.7 billion during the same period from $287.3 billion to $443 billion, ranking first in terms of the increase. Imports from Vietnam also recorded the highest annual growth rate of 12.7%.

Kim Na-yul, a researcher at the Korea Trade Association, said, “It is highly likely that the U.S. will impose sanctions on bypass exports to protect its industry ahead of the presidential election. For Korean companies operating in Vietnam and Mexico not to suffer damage from the sanctions, it is necessary to closely monitor U.S. policies related to items with increased bypass exports to China while thoroughly reviewing whether intermediate goods used in the production process meet U.S. import standards and preparing related evidence.”

She further emphasized, “In the long term, it is important to comply with U.S. trade norms by industry and build a supply chain based on trust, thereby securing a competitive advantage over China in non-price aspects.”

Daniel Kim
content@viewusglobal.com

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