Import Diversification and Trade Diversion: Insights From United States of America - China Trade Patterns

This study examines United States import diversification patterns between 2017 and 2022. It finds that import diversification from China was of a larger magnitude and scope compared to other countries. The study shows that the magnitude of the decline in China's market share across various sectors was mainly influenced by trade policy changes and industry characteristics. The analysis also examines trade diversion effects, which have benefited some countries' exports, finding that these effects were largely driven by the United States' trade policy stance and the economic competitiveness of those countries. In recent years, geopolitical tensions, trade disputes, logistics challenges, and global pandemics have fuelled discussions on supply chain resilience. A common narrative arising from these events has been the need to mitigate risks stemming from potential trade policy changes and supply chain disruptions. A substantial part of this narrative has focused on the United States of America and China because of their strong trade relationship, shifts in their trade policy stance1, and supply diversification strategies. The substantial change in United States import patterns from China provides a valuable opportunity to examine the outcomes and drivers of supply diversification strategies. This analysis is important for both policymakers and businesses, offering empirical insights into how global trade relationships are evolving.