US-China value chain relationship increasingly asymmetric in China’s favor

• In the first chapters of this series, we have analyzed how the evolving nature of Chinese exports, and in particular, the rapid vertical integration of its exports, has transformed not just the global value chain but also regional relationships in Asia and the European Union (EU).
• We now analyze the United States (US) global value chain, its linkages with China and how that relationship has changed to reach the contentious state today. Our analysis shows that the US declining participation in the global value chain is driven by both its reduction in exporting of intermediates used for inputs in others’ exports, an area where it generally excels, and its reliance on foreign inputs for its production. At the same time, the US is increasingly dependent on Chinese intermediates for exports while China is reducing its vulnerability to US imports of inputs for exports.
• Like Europe, the US is not only losing grounds to China in terms of its integration with China’s value chain but also reducing its participation with other regions in the world, such as Latin America, Europe and the rest of Asia. To this increasingly difficult situation in terms of the external competitiveness of the US, we need to add China’s efforts to move up the ladder as made clear in its landmark plan for industrial policy, namely Made in China 2025. Within this context, the US trade measures can be easier to understand, especially since the import tariffs implemented so far put a greater emphasis on intermediate goods, which are the core of the US relative loss of competitiveness.

Full report available for NATIXIS clients.