China's State Council has launched a package of new support measures for exporters, particularly in "labor-intensive export enterprises," including export credit loans and insurance and support for "other charges." On the import side, there is also a call for improvement of customs clearances processes as well as moves to encourage "foreign capital to flow to high-tech industries."
The timing of the import measures is notable given the overdue discussions with the U.S. to assess the phase 1 trade deal, as outlined in Panjiva's Aug. 18 report. There is a risk that the export supports could be taken as old-school protectionism such as subsidies and so may attract complaints by countries via the World Trade Organization.
The labor-intensive industries that China is targeting can be segregated into two groups. The first are labor-intensive industries that have seen exports to the U.S. decrease over the last decade, including non-knitted apparel, footwear, knitted apparel and leather goods.
These product categories use large amounts of manual labor — shoes are hand-stitched for example — and do not benefit as much from automation as other goods. Between 2010 and 2019, U.S. imports of non-knitted apparel and knitted apparel from China fell by 20.4% and 3.2% year over year, respectively, while leather goods and footwear fell by 33.3% and 13.4%.
The second category includes core industries that benefit from automation but may still have significant assembly requirements that still require significant labor costs. Such industries include machinery, furniture and toys and represented 59.1% of China's exports to the U.S. in 2019.
These industries have also seen an increase in exports to the U.S. over the last decade, giving the Chinese government a vested interest in their stability and continued growth.
The biggest competitors for Chinese manufacturers come from Asia and Europe. Total U.S. imports from China dropped by 16.3% year over year in 2019, largely as a result of the U.S.-China trade war. Shipments from Asia and Europe, meanwhile, rose by 3.1% and 5.6%, respectively.
Looking ahead, there may be further migration of manufacturing to Asia from China in pursuit of lower labor costs. Government policies to encourage reshoring to India and Japan may also help. The challenge for Europe may come from the uncertainties caused by worsening trade relations between the U.S. and EU, as discussed in Panjiva's research of Aug 5.
Also of note is that imports to the U.S. from the Americas saw almost no change in 2019. A pause in preparations for the United States-Mexico-Canada Agreement, lower commodity prices and economic instability in South America may be contributing factors.
Looking specifically at the apparel sector, some of the top companies importing to the U.S. from China include retailer Target Corp., luggage maker Samsonite International SA and premium clothing producers Michael Kors (USA) Inc. (part of Capri Holdings Ltd.) and Steve Madden.
Shipments for most have declined recently due to reduced demand in the wake of COVID-19. U.S. seaborne imports from China linked to Samsonite fell by 90.0% year over year in the three months to July 31. Shipments associated with Michael Kors and Steve Madden fell by 59.4% and 78.1% year over year, respectively, despite store reopenings. The Chinese government's subsidies may provide a long-term spur to growth.
Target, meanwhile, has had a surge in imports as the firm restocks after strong sales in the second quarter, as outlined in Panjiva's Aug. 12 analysis. While shipments from China fell by 12.6% year over year in the three months to July 31, there was a rebound of 54.4% in July.
Eric Oak is a researcher at Panjiva, which is a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.