Aurelia Butler

China will soon account for less than half of the US’s low-cost imports from Asia for the first time in more than a decade, new data has shown, as western companies shift operations out of the country.According to an annual reshoring index from Kearney, the Chicago-based management consulting firm, US efforts to reduce reliance on China, as well as price-sensitive American buyers, are driving trade towards lower-cost alternatives in Asia.“By the end of 2023, China’s portion of US imports” from low-cost Asian countries, which excludes Japan and South Korea, “will definitely have dropped below 50 per cent”, said Patrick Van den Bossche, one of the report’s authors.The US and China are each other’s largest respective trading partners. Last year, Chinese goods made up 50.7 per cent of US manufactured imports from Asian countries, according to the Kearney Reshoring Index, which is based on US trade data. That was down from nearly 70 per cent in 2013.While exports from China, once hailed as the world’s factory floor, have declined, imports from Vietnam have doubled in the past five years and tripled over the past 10, according to the Kearney index. India, Taiwan and Malaysia have also contributed a greater share of products from Asia consumed by Americans.“US imports from other countries such as Vietnam [are] rising as producers shift manufacturing away from China,” said Tu Xinquan, dean of the China Institute for WTO Studies at the University of International Business and Economics in Beijing.The relocation of manufacturing out of China was initially spurred by protectionist Trump-era tariffs on goods, as well as labour shortages in China that drove up wages and costs.But the trade segregation between the superpowers has accelerated under the Biden administration, which has pursued an economic security agenda amid tensions over issues ranging from advanced semiconductor technology to Beijing’s threats against Taiwan.New US laws “continue to lead to increased investments away from China and into the US and Mexico when it comes to, for example, semiconductor manufacturing [and] EV [electric vehicle] batteries,” said Van den Bossche, referring to legislation such as the Inflation Reduction Act and the Chips and Sciences Act, which offer subsidies to encourage chipmakers to reshore operations.In a March report, analysts at Morgan Stanley said: “Increasing labour costs in China, geopolitical tensions and human rights issues have encouraged other companies to rely less on Beijing as the world’s factory.”“The disentangling of the two economies has led to critical manufacturing coming home and a shift in imports from China to the Association of Southeast Asian Nations, India and Mexico,” they added.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

Container volumes also reflect a shift in US imports from other low-cost Asian markets at China’s expense.China’s share of total US container imports declined from a peak of 42.2 per cent in February last year to 31.6 per cent in March this year, though it has since climbed again as its economy reopens from pandemic controls, according to Canada-based logistics technology company Descartes. India’s and Thailand’s share grew slightly to 4.1 per cent and 3.8 per cent, respectively, between February 2022 and April 2023.Phoebe Gao, from shoemaker UT Footwear in China’s southern coastal Fujian province, said some manufacturers were pivoting to offer higher-end products and improved services to compete with “basic styles” offered by cheaper suppliers abroad.Some manufacturers are looking even further afield, expanding their presence in south-east Asia and beyond as global inflation rises and brings up wages. Water heater producer Guangdong Vanward New Electric said it was opening production sites in Egypt as well as Thailand in response to demands from US clients.

You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.

“You either move closer to the market, or you move close to your resources,” said Simon Goh, general manager of Arise IIP China, which operates manufacturing industrial zones in partnership with local governments in Africa. “If you look into Africa, if you look at other places, there’s also a huge growing [labour supply].”But there is a limit to the share of manufacturing in China that can practically be replaced elsewhere, Kearney’s Van den Bossche said, citing chemicals in particular.A 2019 Deutsche Bank study of 719 products for which the US relied on China found that 95 per cent of them could be supplied from elsewhere in Asia. The 38 remaining items “were made up largely of chemical and related goods”, the report said.Additional reporting by Gloria Li in Hong Kong More

WASHINGTON (Reuters) -President Joe Biden on Saturday signed a bill that suspends the U.S. government’s $31.4 trillion debt ceiling, averting what would have been a first-ever default with just two days to spare.The House of Representatives and the Senate passed the legislation this week after Biden and House of Representatives Speaker Kevin McCarthy reached an agreement following tense negotiations.The Treasury Department had warned it would be unable to pay all its bills on Monday if Congress had failed to act by then.Biden signed the bill at the White House a day after hailing it as a bipartisan triumph in his first-ever Oval Office address to the nation as president.The bill signing, which was closed to the press, marked a low-key, symbolic end to a crisis that vexed Washington for months, forced Biden to cut short an international trip in Asia and threatened to push the United States to the brink of an unprecedented economic crisis.”Thank you to Speaker McCarthy, Leader Jeffries, Leader Schumer, and Leader McConnell for their partnership,” the White House said in a statement announcing the bill’s signing, naming the Democratic and Republican leaders of the House and Senate.Officials later released a ten-second clip of Biden silently signing the document at the White House.”It was critical to reach an agreement, and it’s very good news for the American people,” Biden said on Friday. “No one got everything they wanted. But the American people got what they needed.”The Republican-controlled House voted 314 to 117 to approve the bill, and the Democrat-controlled Senate voted 63 to 36. Fitch Ratings said on Friday the United States’ “AAA” credit rating would remain on negative watch, despite the agreement that will allow the government to meet its obligations. More

“We continue to see the Fed on hold at the June meeting, and think the bar will be too high for the Fed to resume hiking,” Morgan Stanley said in a Friday note. “We continue to see the Fed on extended hold with the first cut in 1Q24.”The Making of a June SkipThe growing expectations for the Fed to pause in June come even as Friday’s payrolls report showed far more jobs were created in May than economists had expected.The numbers from the payroll report, also referred to as the establishment survey, were “undeniably strong,” Morgan Stanley says.But weakness in the household survey showing jobs fell by 310,000 in May, the “unusually large” increase in the unemployment rate, and the slowing in labor income support a pause in June, it added.But not everyone agrees . . . Scotiabank Economics said the case for a June hike “remains solid, … adding that expectations the Fed would be more focused on the uptick in unemployment is “pure rubbish.”The uptick in unemployment was driven by a 130,000 rise in the size of the labor force and weakness in the less accurate household survey. “Those numbers are pure statistical noise,” it added.  Still, the case for a pause next month was strengthened after Fed Governor and vice chair nominee Philip Jefferson and Philadelphia Federal Reserve President Patrick Harker signaled earlier this week the Fed could skip hikes at the June meeting to assess incoming data.Both voting Fed-members, however, stressed that a potential skip on hikes wouldn’t imply that the Fed’s tightening cycle had come to an end.While markets appear to be taking the Fed at its word, with pricing still showing a July hike remains in play, Morgan Stanley isn’t so sure. “After the June meeting, we think the hurdle to resume hiking only increases.”The Potential Hop Into a Prolonged Pause Between the June and July meeting, the incoming data will be sparse and aren’t likely to meet the high bar to show a definitive re-acceleration in the labor market and the pace of inflation.“It would take a 0.7% monthly increase in core-core services in June for the trend pace to reaccelerate, and similarly a payroll print greater than 200,000,” Morgan Stanley says, forecasting both measures to slow in June.June CPI inflation is expected to show deceleration in core services ex-medical, ex-housing, on both a month-on-month basis and three-month annualized trend basis to 0.29% and 3.36% respectively, while the June payrolls is seen slowing to 180,000, resuming a slowdown in the three-month moving average, it added.The expected slowing in the labor market will likely dent wage growth and put the consumer and economy in the crosshairs at a time when savings are running out, adding further ammunition for the Fed to persist with a pause.The $2.2 trillion in excess savings that was on consumer balance sheets during the early days of the recovery …  is down to $822 billion, according to Jefferies.The outlook for consumer spending, which makes up about two-thirds of economic growth, remains “quite bleak in our view because of this balance sheet fatigue,” it added.As the incoming data keeps the Fed on pause for July, the central bank’s penchant for inertia on monetary policy, suggests it’ll likely remain on pause.  “The FOMC tends to operate under the law of inertia, once it stops hiking, it will be difficult to resume, especially in the very next meeting,” {{Morgan Stanley said}}.Recent history adds credence to the claim of “Fed inertia.”It wasn’t too long ago that the Fed was dragging its heels, refusing to withdraw extraordinary monetary policy and acknowledge signs that inflation wasn’t transitory.It took months for the Fed to eventually turn off the liquidity spigot, and what followed was a game of catch-up as the central bank’s unleashed the fastest pace of rate hikes in four decades to rein in inflation.An Eventual Jump to Cuts in Q1’24?The Fed will eventually cut rates starting in first-quarter 2024, Morgan Stanley estimates.But bets on a cut have shifted around so much, and Q1 is some ways off with a slew of data still due, suggesting that forecasting the pivot is now almost expected to come with a side order of mea culpa.In the aftermath of the banking turmoil, markets were forecasting a pivot to a cut by the summer, but that was pushed out to the fall and now bets on a pivot by year-end are hanging by a thread, if not already priced out. The current consensus is now more in line with the consistent message from the Fed that rate cuts aren’t on the table this year. More