The trade conflict between the US and China has led to tit-for-tat tariff increases imposed on a significant portion of their respective exports since it started in 2018. The US increased tariffs on Chinese exports from 3.1 percent in early 2018 to 19.3 percent by 2020, affecting around 66.4 percent of China’s total exports. In response, China raised tariffs on US exports from 8.0 percent at the start of 2018 to over 21.1 percent by 2020, impacting approximately 58.3 percent of US exports. These barriers not only influenced bilateral trade, output, and inflation, but also have a lasting impact on trade patterns.

The US has historically been China’s primary export destination, a dynamic that has shifted notably since the trade conflict began. Although the shift was temporarily reversed by the COVID-19 pandemic, the trend persisted downward after 2021, which consequently reduced the US’ importance as China’s primary export partner. China’s exports to the US, as a proportion of its total exports, has decreased by over three percentage points from 2018 to 2022—equivalent to about USD102 billion, or 0.57 percent of China’s GDP, in 2022. This was accompanied by a decline in its contribution to China’s overall export growth. The downward shift was also evident in China’s exports to Hong Kong, China, which serves as an entrepôt for goods destined for the US.

However, increases in exports to the European Union (EU) and ASEAN have compensated for the decline in China’s export share to the US. An increase in China’s export share to the EU indicate a shift toward alternative markets that share similarities with the US in terms of income levels and consumer preferences, while ASEAN has grown to become China’s key partner for exports.

A similar pattern has been observed for China’s imports from the US. Imports from the US has declined since 2019, despite a resurgence during the pandemic between 2020 and 2021. This has reduced the share of US imports within China’s overall import portfolio, and adversely affected China’s overall import growth.

Increased imports from ASEAN, however, have made up for the shortfall in China’s import share from the US, and solidified the region as its primary source of imports. This corresponds with the simultaneous increase in foreign direct investment flows from China into the ASEAN region.

Beyond shifts in partnerships, the composition of China’s export and import goods have also undergone notable changes. Sectors which have been affected by trade restrictions with the US saw a pronounced decline in shares of exports and imports, compared to other trading partners. In contrast, China’s export and import shares with ASEAN have seen a consistent increase across various sectors, irrespective of whether trade within these sectors in the overall trade basket is expanding or contracting.

Furthermore, a new AMRO study has found that political distance is now a crucial factor contributing to the observed changes in China’s trading patterns. It showed that a negative correlation between export growth and the political distance of trading partners has developed post-2018, whereas this relationship was not statistically significant before the onset of the trade conflict. The study gauged the divergence in political orientation between countries based on their voting patterns in the United Nations General Assembly.

AMRO findings also suggest that China appears to be prioritizing trade with nations that are more politically aligned, likely to mitigate potential disruptions in the event of political conflicts. After 2018, a one-unit increase in political distance between China and a trading partner leads to a 2.6 percent decline in China’s exports to the trading partner’s economy, on average.

This negative correlation is evident in China’s exports, with eight out of 15 export sectors affected by political distance. However, among China’s imports, only textiles, footwear, and base metals—three out of the 15 import sectors—exhibited similar relationships. The impact is more prominent in goods in which China has a revealed comparative advantage such as furniture, textiles, footwear, and toys. This is evidenced by a reduction in exports of these goods to politically distant countries after 2018. A reduction in China’s imports from politically distant countries was also observed for goods which China lacks a comparative advantage.

AMRO’s study also found that political distance exerts a detrimental effect on Chinese exports and imports of intermediate goods. This phenomenon, which was less pronounced in final consumption and capital goods, suggests a potentially heightened sensitivity of intermediate goods to political uncertainties, likely reflecting the critical role of semi-conductors.

The lasting repercussions of the US–China trade conflict extend beyond the two countries, affecting their trading partners as well. The consequences could potentially reshape the global trade landscape, especially in ASEAN, which has a pivotal role in global manufacturing and trade.

Diversifying trade partnerships, fostering cooperation, and addressing geopolitical tensions have become essential imperatives for the ASEAN+3 region to navigate these changes and foster future growth. ASEAN+3 economies should also emphasize an open global trading system, ensure transparency, implement rules-based frameworks, and engage in dialogue in multilateral fora to help resolve trade issues and promote mutual prosperity.