China’s U.S. Exports See Biggest Drop in 30 Years
Is China losing its grip as the “world’s factory?”
The superpower saw its exports slip by 4.6 percent to $3.4 trillion in 2023, the first contraction in dollar terms in seven years, according to recent data from its customs office.
More from Sourcing Journal
The United States contributed to the slump with a steep 13 percent drop in imports from China to $500.3 billion, its biggest deflation since the agency began keeping records in 1995. It’s also likely, according to numbers released by the U.S. Commerce Department last week, that another country—in this case, Mexico—will boot China from its position as America’s leading source of imported goods for the first time in 17 years. For the first 11 months of 2023, goods imported from China amounted to 13.9 percent of U.S. imports, less than the 15 percent hailing from Mexico.
The tariff-fueled trade war instituted under President Donald Trump and extended by President Joe Biden is an obvious cause of a palpable slide since 2017, when Chinese goods comprised more than 21 percent of inbound shipments to the United States.
But measures such as the Uyghur Forced Labor Prevention Act (UFLPA), which essentially bars any products made in whole or in part in China’s Xinjiang Uyghur Autonomous Region, have also led U.S. fashion companies to reduce their China exposure, said Sheng Lu, associate professor of fashion and apparel studies at the University of Delaware. Less than 12 percent of U.S. cotton apparel imports in the first 11 months of 2023, in fact, originated from the country, he said, a “straight five-year decline” from nearly 30 percent in 2018.
The data, Lu said, lines up with his research into American fashion purveyors’ China sourcing strategies. Perusing the annual reports of the 30 largest companies from 2019 to 2022, he found that one-third of them “explicitly mentioned” that they had reduced finished garments sourcing from China and would continue to do so going forward.
“Companies also cited forced labor and geopolitics as their top concerns associated with sourcing from China,” Lu said.
Even so, increasing diversification—the so-called “China plus one” strategy—isn’t likely to significantly diminish China’s position in the broader trade landscape. Many supply chains outside of China remain highly dependent on the country’s raw materials. Take Vietnam, which has to date surpassed China in the value of freight blocked by Customs and Border Protection under the UFLPA—$10 million versus $2 million.
“Even though fewer finished garments are coming from China, U.S. fashion companies admit that China will continue to play a critical role as a textile raw material supplier as no immediate practical alternative is available,” Lu said. “In other words, because textile manufacturing relies heavily on capital and technology, building textile production capacity outside China will be considerably longer and more challenging than finished garments.”
Then there’s the fact that “nearshoring” and “friendshoring” shifts are replete with similar political and security risks, wrote Verisk Maplecroft in new research based on five-year trends in 40 emerging markets, more than half of which are experiencing civil unrest, government instability, exposure to conflict or a combination of the above. All these pose challenges that need to be factored in when considering the viability and potential resilience of new manufacturing locations, said Patrick Roberts, principal consultant, resilience, at the risk intelligence consultancy.
“Major garment exporting countries in the Americas, such as Mexico, Honduras and El Salvador, have all witnessed a rise in political risk over the last five years—a trend that is also seen in seven of the eight largest garment manufacturers outside of China,” he said. “The main driver of political risk in these hubs is an increase in the threat of civil unrest, which is unlikely to subside in 2024 according to our predictive model.”
Investments from China that are flowing into such alternative sourcing destinations can also complicate efforts to limit a nexus with China, Lu added, potentially strengthening, not weakening its position in apparel supply chains. “And stakeholders’ viewpoints on ‘investments from China’ appear even more subtle and complicated,” he added.
An election year in the United States, with its attendant saber-rattling against perceived foes to national security or competitiveness, isn’t likely to go easier on China, however.
“Besides forced labor and Section 301 tariffs, we might see trade tensions between the two countries extend further to the U.S. de minimis rule reform, potentially negatively affecting China’s e-commerce business owners,” Lu said. “Election-year politics could also bring new political instability to bilateral trade relations.”
Still, there’s a popular misconception that American fashion firms source from China for “cheap products.” He pointed to a U.S. Fashion Industry Association benchmarking study that saw them rate China as the “most competitive” in terms of fulfilling sourcing orders in relatively small volumes but with great variety. The “flexibility and agility” that China offers, then, is key.
“One of my recent studies shows that, on average, U.S. fashion companies’ contracted garment factories in China were much smaller than those in Vietnam, Bangladesh and Sri Lanka, suggesting Chinese factories are more likely to fulfill smaller sourcing orders,” Lu said.
