In September 2018 President Trump put a 10% tax on a long list of imports from China. In May 2019 the tax was raised to 25%. The list of items runs to 194 pages. Reading through it is a slightly weird experience.
t is almost as if there was a wish to make the list seem more impressive (or to make economists' lives more difficult).
Some of the tax's impact has been indirect. Companies are less certain about the future. Uncertainty has delayed investment. Delayed investment has further weakened trade. Delayed investment has also weakened manufacturing. But has trade been directly affected by the tax?
The chart shows how China's share of US imports has changed, across the nearly 4,500 different products subject to the 10% (from May, 25%) trade tax. China has increased its share of US imports in some cases. Using 2017 import values, nearly USD 4bn of Chinese imports increased market share by over 10% after the tax. Steam jets, color television cameras and some car parts had a 10%-plus increase in market share.
In fact, almost half the taxed imports from China either increased market share or had market share fall by less than 1%. For these imports, the trade tax does not do what the US wants. There is no evidence of China changing supply chains after the tax. US customers will be bearing the cost of the trade tax for these goods.
There are areas where China has lost market share. These areas are where the trade tax works. So who is getting China's market share? This depends on the product. There are a small number of exports where China has been a big loser (losing more than 10% market share). In fact, almost half the value of the big losers is from three categories: printed circuits, data processing machine parts and handbags.
Within the machinery and electronics sector, there are big losses of market share for China in computer components, wind turbines and some auto parts.
China's lost electronics market share is largely being taken by two countries – Korea and Taiwan. US customers seem to have bought more from China in advance of the September tax increase (stockpiling), but since then have switched to Korean and Taiwanese suppliers.
Two other countries have picked up significant market share from China: Mexico and Vietnam. Mexico has taken market share across several sectors. These include some electronics, wind turbines and parts for vehicles. Mexico has also gained share of the US market for specific data processing units, an area where China has lost market share. However, Mexico's rise in this category predates the trade taxes. Vietnam has taken on some of China's lost handbag exports. It has also gained market share in electronics (not circuits, but things like modems).
Indonesia and Thailand have been talked of as alternative locations for low-cost production. They have not yet gained much market share from China, though this may happen in the future as supply chains shift.
The US has switched from China to Canada when buying some commodities. Canada has not gained much overall, however.
The 10% US trade tax has only partly worked. US imports of about half the products (by value) have reacted. Whether a 25% tax has a bigger impact remains to be seen. The really big impact from the tax is on a small number of goods. Korea and Taiwan have benefited most. Vietnam and Mexico are also getting more share of the US market at China's expense.
(BY UBS)
