China Tech Sector Focuses on Asia Amid Pandemic

The Covid-19 pandemic is accelerating a “decoupling” between U.S. and Chinese high-tech sectors and supply chains, according to an analysis by Trade Data Monitor.

What March trade data suggests is that companies from the two rival economic superpowers are shipping more regionally, a sign they’re heading toward cutting countries out of their supply chains and producing more locally. That would reverse a process of tighter global integration and the building of long, intricate multiple-country just-in-time supply chains that began when China joined the World Trade Organization in 2001 just as the consumer tech boom exploded.

Chinese high-tech exports to the U.S., its biggest market, fell 21.7% in March, to $7.5 billion from $9.5 billion in the same month a year before, and high-tech shipments to the UK declined 29.9% to $917.6 million, year-on-year, according to Trade Data Monitor, the world’s premier source of trade statistics.

China High-Tech Exports to Top Partners (select commodities from HS 28, 29, 30, 32, 38, 39, 84, 85, 87, 88, 90, 93, 96); Billions USD; March 2018, 2019, 2020; 12, 10, 8, 6, 4, 2 Billions USD; United States, Japan, South Korea, Vietnam, Netherlands, Taiwan, Germany, Singapore; 2018, 2019, 2020; Source: China Customs Statistics via Trade Data Monitor LLC; May 2020

Meanwhile, shipments to Vietnam increased 26.7% to $2.8 billion, and those to Singapore rose 25.4% to $1.5 billion, suggesting that Chinese tech companies are shifting inventory and parts to countries where they can stock inventory, assemble parts for manufacture, and sell finished products to consumers.

Overall in March, Chinese exports of high-tech goods declined 8.1% to $54.5 billion from $59.3 billion the same month a year ago. The regional disparity, between US/EU and the rest of the world, suggests that China will seek to replace lost markets in the West by building on its dominance in Asia and Latin America.

Accurate and up-to-date data is crucial to understanding what’s happening to global trade as it undergoes historic shifts during the pandemic.

This year, there is no bigger factor driving change in the global economy than the coronavirus pandemic. U.S. GDP is expected to drop 38% in the first quarter, according to Morgan Stanley. Deutsche Bank is forecasting an 31.7% contraction in Chinese gross domestic product in the first quarter.

But there is a silver lining in the tech industry. While we’re all stuck at home, we’re watching Netflix, ordering pizza and sushi on Grubhub, and buying toilet paper on Amazon. Yes, demand is sure to wane as people lose income, but the tech industry is sure to maintain pockets of strength: Simply, it’s become essential to human life as we know it.

But how high-tech goods are made is due for a change.

According to TDM data, China still dominates long-term high-tech trade trends. In 2019, China’s total high-tech exports slipped 2.2% to $716.7 billion. The European Union was in second place, at $433.5 billion (up 5.6%), and the U.S. fourth, at $267.6 billion (up 0.6%).

Top High-Tech Exporters (select commodities from HS 28, 29, 30, 32, 38, 39, 84, 85, 87, 88, 90, 93, 96); Billions USD; 2014-2019; 800, 700, 600, 500, 400, 300, 200, 100 Billions USD; China, EU 28 External Trade, Hong Kong, United States, Taiwan, South Korea; 2014, 2015, 2016, 2017, 2018, 2019; Source: Trade Data Monitor LLC; May 2020

Now, as the pandemic follows a trade rift between Washington and Beijing, companies will want to insulate themselves from political and supply chain risk. In March, 44% of 25 large U.S. companies surveyed said decoupling would be impossible, down from 66% in October, according to a survey by China-based chambers of commerce cited in the Wall Street Journal.

Already, according to more detailed trade data, the EU and U.S. form a tightly woven supply chain. In 2019, the EU imported $225.3 billion of high-tech goods from the U.S., second only to China. Of that $23.1 billion was goods meant for processing and re-export. By comparison, the EU imported $304.2 billion of high-tech goods from China, of which only $3.6 billion worth was meant for processing.

Although measures of service trade are difficult to assess, service trade usually follows goods trade, so the two are closely related. For example, when a manufacturer imports parts to make a computer or phone, it must also contract the expertise to assemble them as a finished good.

One compelling feature of TDM’s database is its historical breadth. Consider this: In 2000, the U.S. was the world’s number one tech exporter, shipping out $142.2 billion. China was in fourth place at $29 billion. By 2010, the iPhone revolution had propelled China to top in the world, with $425 billion of exports.

Now, as the coronavirus pandemic changes the shape of the world’s economies and supply chains once again, trade data is there to tell the story of the next big historical shift.