How Trump and Biden have failed to cut ties with China

D onald Trump and Joe Biden do not agree on much, but they are of a similar mind when it comes to America’s trade relations with China. They believe that the world’s largest economy is simply too reliant on its second-largest. Thus American officials travel the world touting the benefits of “friendshoring”—or shifting production out of China and into less risky markets. Business leaders make positive noises, and are sincerely worried by China’s weak economic growth, not to mention its volatile politics. The number of comments in earnings calls referring to “reshoring” has exploded.Yet how much of this is anything more than talk? Last year The Economist argued that lots of the supposed decoupling between America and China is in fact illusory. Look closer, we wrote, and the two countries’ economic relationship is holding strong, even if this fact is masked by tricks on both sides. Since then a growing body of evidence confirms, and strengthens, our original findings. The economies of America and China are not coming apart. Indeed, some changes to supply chains may be binding the two countries even closer together.Of TikTok and solar panelsA complete picture of Chinese-American trade would cover trade in services, including America’s use of Chinese apps and China’s love of American films. But these flows are difficult to track, meaning that economists have focused their attention on trade in goods, which customs officials measure reasonably accurately. Here, the headline figures will cheer Messrs Biden and Trump. Last year Mexico overtook China as America’s largest source of imports. Since 2017 the share of

America’s imports coming from China has fallen by a third to around 14%, according to American figures. A chunk of that decline came after Mr Trump implemented high tariffs in 2018. Another chunk reflects growing worries about China’s territorial ambitions: if China invades Taiwan, many Asian supply chains will become unworkable.image: The EconomistThe headline figures do not tell the whole story, however. To understand why, start with Mr Trump’s tariffs, which Mr Biden has largely kept in place. Before their introduction in 2018, American statistics suggested that America received many more imports from China than did Chinese statistics. Now the opposite is true. China reports that its exports to America rose by $30bn between 2020 and 2023, whereas America says its Chinese imports fell by $100bn. If China’s data are correct, the country’s share of American imports has still declined, but by much less.What accounts for the gap between the measures? Adam Wolfe of Absolute Strategy Research, an advisory firm, suggests that the switch reflects the fact that American importers have an incentive to underreport how much they are buying from China in categories covered by tariffs. Mr Wolfe estimates that, as a consequence, America now understates its imports from China by 20-25%. At the same time, in recent years the Chinese government has cut taxes on exporters, reducing the incentive for domestic businesses to undercount goods leaving the country.Other data provide additional reason for scepticism about decoupling. “Input-output” tables, as published by the Asian Development Bank, show the share of a country’s economic activity

that can be traced back to other ones. Examining 35 industries, we calculate that in 2017 the Chinese private sector contributed on average 0.41% of American firms’ inputs. That may not sound like much, but it beat the 0.38% that came from Germany and the 0.24% from Japan. By 2022 China’s share had more than doubled to 1.06%, a larger proportional increase than for either Germany or Japan. It is hard to know exactly what is behind this trend. America’s attempts to build clean-energy infrastructure could be one factor, making imports of Chinese electrical equipment much more important. American service-sector firms also appear to be increasingly reliant upon intellectual property owned in China. Whatever the cause, the figures are hard to square with supposed decoupling.Developments on the Chinese side also push against decoupling. China’s leaders have no intention of relinquishing their country’s role in global supply chains, even as its biggest trading partner is half-heartedly trying to cut it off. In December the Central Economic Work Conference, China’s agenda-setting economic council, made expanding trade in intermediate products (those used to make finished goods) a priority. State banks are redirecting credit from property to manufacturing, raising the prospect of a glut of Chinese exports. And many of the new titans of Chinese industry, like Contemporary Amperex Technology, a battery firm; BOE Technology Group, a producer of organic light-emitting-diode displays; and LONG i Green Energy Technology, which makes components for solar panels, are well placed to benefit from this strategy.Green with envyIndeed, th