For the first time in 20 years, a country has overtaken China to become the leading exporter to the United States.

For the first time in two decades, exports from an Asian country to the United States have exceeded the total export value to China. In addition, the U.S. trade deficit has declined at its fastest rate since 2009, driven by reduced dependence on China.

According to CNN, for the past two decades, the United States has imported more from China than from any other economy. However, that has now changed.

Data from the U.S. Department of Commerce shows that Mexico has overtaken China to become the largest source of imports for the world’s leading economy.

In 2023, Mexico exported goods worth a total of 475.6 billion USD to the United States, up 5% from the previous year. Meanwhile, China’s total exports to the U.S. reached only 427.2 billion USD, down 20% compared to 2022.

Thanks to reduced dependence on China, the U.S. total trade deficit—the measure of the balance between imports and exports—fell by 19% in 2023 to 773.4 billion USD. This marks the sharpest decline since 2009.

Senior expert Brad Setser of the U.S. Council on Foreign Relations (CFR) stated that the tariff barriers imposed by former U.S. President Donald Trump on Chinese imports have been a key factor affecting the trade deficit described above.

In addition, economist Matthew Martin of Oxford Economics noted that the depreciation of the U.S. dollar has made American exports cheaper, thereby boosting sales and helping to reduce the trade deficit.

According to CNN, American consumers have reduced their purchases of Chinese imported goods such as electronics, as prices are no longer as cheap as before. In contrast, spending has shifted toward services such as travel and entertainment, which have become more prominent in U.S. consumption patterns.

Times have changed

The New York Times (NYT) reported that during the pandemic, when container shipping costs to China increased 20-fold, Marco Villarreal spotted an opportunity.

In 2021, Villarreal resigned as CEO of Caterpillar in Mexico and began seeking companies looking to relocate production from China to the United States’ neighboring country.

A client in Hisun, China, specializing in all-terrain vehicles, hired Villarreal to establish a $152 million factory in Saltillo, Mexico.

This was not Villarreal’s only client, as the expert said many businesses are looking to relocate factories due to concerns over U.S.–China trade tensions.

“Everyone is flocking to Mexico,” Villarreal acknowledged.

According to the NYT, the U.S. trade deficit with China has declined significantly as consumers shift toward imported products such as auto parts, footwear, toys, and raw materials from Mexico, Europe, South Korea, India, and Canada.

During the pandemic, Americans were stuck at home and went on a shopping spree online, buying cheap imported products from China such as laptops, toys, COVID-19 test kits, furniture, sports equipment, and more.

Even after lockdown measures were lifted in early 2022, the buying surge did not stop, as supply chain disruptions meant many domestic products or goods from other manufacturers could not reach U.S. customers.

However, times have changed: by 2023, U.S. imports from China had fallen back to levels comparable to those of a decade earlier, despite the world’s largest economy continuing to grow over the past 10 years and imports increasing from around the globe.

Research by expert Caroline Freund at the University of California shows that imported goods from China subject to high tariffs—such as screwdrivers and smoke detectors—saw sharp declines in sales, while some products like microwave ovens and hair dryers have managed to remain competitive.

production relocation

From another perspective, the NYT reported that many experts are concerned that imposing tariffs on Chinese imports still has loopholes, as companies can relocate to other countries, as in the case of Mr. Villarreal.

A report from the United Nations Conference on Trade and Development (UNCTAD) shows that while foreign direct investment (FDI) into developing economies fell by 9% in 2023, it increased by 21% in Mexico.

Similarly, another country that is also rising strongly with ambitions to replace China is South Korea. Benefiting from a free trade agreement with the United States, exports from the “Land of Morning Calm” to the U.S. market reached a record high in December 2023.

In particular, South Korea’s automotive sector is seeking to take advantage of incentives to build electric vehicle factories in the United States, thereby competing with Chinese rival BYD, which has been expanding aggressively worldwide.

In December 2023, for the first time in 20 years, exports from South Korea to the United States exceeded the total value of its exports to China.

“To survive, companies will always look for promising markets to grow,” said Min Sung, Chief Commercial Officer of SK On, which is investing 2.6 billion USD to build factories in Georgia, Tennessee, and Kentucky in the United States.

Source: CNN, NYT