How will China’s mounting economic woes impact the global supply chain?

The news for China hasn’t been too rosy lately. Recent reports indicate that its economy continues to falter — and President Biden just signed an Executive Order that will further impact its technology sector.

But what do such developments mean for the global supply chain? One indicator may be the recently released findings of the Descartes Global Shipping Report.

Although not reflective of the most recent news, the report may provide an indication of potential supply chain shifts that could occur as countries make either gradual or sudden pivots from their reliance on China’s previous manufacturing dominance.

But before we dig into the report, here are highlights of several recent developments impacting the “workshop of the world.”

BEA data: China falls in top-trade-spot ranks

That reference to China can be attributed to Diccon Hyatt, writing for Investopedia.

“If you’ve seen fewer ‘made in China’ labels on the products you buy, it’s no accident: trade between the U.S. and its biggest Asian trading partner has diminished as manufacturers have left China for friendlier shores,” Hyatt writes in an August 8 article.

Citing data released that day by the U.S. Bureau of Economic Analysis (BEA), Hyatt notes China is “slipping behind Mexico and Canada as the No. 1 U.S. trading partner in goods…”

He cites trade wars and friendshoring dynamics as partly to blame, as companies have “sought to ‘de-risk’ by moving production of consumer electronics and other goods to Vietnam, South Korea, Taiwan, and Malaysia.”

And let’s not forget about those U.S. export controls on certain high-end chips.

“U.S. trade in goods with China totaled $44.6 billion in June, down from $46.6 billion in May, and far short of the $60 billion the same month in 2022, according to non-seasonally adjusted data released Tuesday by the Bureau of Economic Analysis,” Hyatt writes. “China was often the number one U.S. trading partner throughout the 2010s, but Canada and Mexico have traded the top spot since February 2022.”

China’s July exports drop

Also on August 8, the news emerged that China’s July export numbers experienced a significant drop.

“China’s exports suffered their biggest drop in more than three years in July as global demand slowed, adding further pressure on Beijing to find ways to reinvigorate the world’s second largest economy,” writes CNN’s Laura He. “The value of exports, measured in US dollars, fell 14.5% last month from a year ago, the biggest drop since February 2020 when the initial Covid-19 outbreak battered trade and production, according to Chinese customs statistics released on Tuesday.”

He notes the July numbers reflect a decline in exports for three months in a row.

Citing an August 8 research note written by analysts from Capital Economics, He said the analysts estimate that when “seasonality and changes in export prices” are taken into account, July export volumes may have dropped only 0.9% from the month prior.

But she also notes that the analysts predict a further decline in exports in coming months, based on “wider evidence” indicating that “global goods demand is falling as pandemic distortions unwind and monetary tightening weighs on consumer spending.”

New Executive Order restricts Chinese tech investments

Adding to China’s dismal week of economic news, President Biden issued a new Executive Order (EO) on August 9, “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern.”

In the EO, President Biden says:

President Biden summarizes his concerns by saying he therefore finds that “advancement by countries of concern in sensitive technologies and products critical for the military, intelligence, surveillance, or cyber-enabled capabilities of such countries constitutes an unusual and extraordinary threat to the national security of the United States, which has its source in whole or substantial part outside the United States, and that certain United States investments risk exacerbating this threat. I hereby declare a national emergency to deal with this threat.”

The lengthy EO contains a lot of additional context and directives, as well as the definition of a variety of terms — including two that are particularly pertinent:

The Annex lists the “countries of concern” as:

Coverage of the announcement and response from both investors and China has been extensive. Here are a few headlines you may want to check out:

In the following video, CNBC’s Eamon Javers joins ‘Closing Bell Overtime’ with “an update on the White House’s executive order targeting Chinese tech investing.”

Descartes Global Shipping Report: The China-U.S. Trade Shift

On June 12, the Descartes Systems Group, which refers to itself as “the global leader in uniting logistics-intensive businesses in commerce,” announced the results of its global shipping report, U.S. Trade Shift: Where Did the Market Share Go or Did It? The study evaluates how “the market share of top imports from China into the U.S. has changed over the last seven years.”

As we noted previously, the report isn’t reflective of the most current news regarding China’s economic woes, but may provide some indication of potential supply chain shifts on the horizon.

“A number of factors have caused many companies to announce plans to find additional or alternate sources to China, but it remains the dominant non-North American trading partner with the U.S.,” Descartes notes. “So, where are U.S. importers finding alternate sources for their goods and how far have efforts progressed? The study…investigates the top import commodity groups and countries of origin (CoO) to provide insight into shifting trading patterns.”

“The analysis shows that China has been slowly losing its share of U.S. container import volume but remains the dominant CoO for many of the top 10 commodity groups imported by the U.S., even as countries in South and Southeast Asia, such as Vietnam, India, Thailand and Indonesia, have quickly built capacity in a number of goods categories,” said Chris Jones, EVP Industry at Descartes. “Descartes’ report provides insight into the share of volume that has shifted away from China, where it went in terms of other CoOs and how the story differs across the top commodity groups.”

To provide importers with better insight to the shifting trade landscape, Descartes analyzed the top 10 two-digit commodity categories (HS-2 digits) and their top 10 CoOs over the period of 2016–2022. The research firm aimed to see how China is doing in terms of market share and — in instances where it is losing its position as a top U.S. trading partner — what countries are displacing it. Descartes notes that the analysis “paints a different picture depending upon the commodity group.”

Here’s a snapshot of the results, for which the firm notes that “from a historical perspective,” Mainland China is measured separately from Hong Kong.

In the key findings, Descartes notes that for the top 10 goods categories over the period studied, China had:

Additionally:

For the detailed results for each category, please check out the full report.